R&D Tax Credits at a glance:
WHAT: R&D expenditure is money spent on a project which contains technical uncertainty; for example: Labour (direct/subcontracted) – development, technical analysis, management, testing, prototyping, developing manufacturing processes. Consumables – software licenses, heating/lighting, supporting software/SaaS, and part of hardware costs.
WHO CAN CLAIM: Both profitable and unprofitable UK companies that invest in R&D (in- house or outsourced labour, testing, prototyping, developing manufacturing processes etc).
HOW MUCH : Usually amounts ranging from 15-32% of the R&D costs in the last two completed financial years.The funds are received as a refund of Corporation Tax or, if the company is loss-making, as a cash credit.
Those are the key facts about the R&D Tax Credits scheme. Now that’s whet your Tax Credit taste buds, let’s break it down a little more.
Launched in 2000, the R&D Tax Credits scheme, is a tax break provided by the government. In order to make the UK more competitive globally, R&D Tax Credits is provided as an incentive for technical and manufacturing firms to invest in developing their own innovative products.
How do they work? R&D Tax Credits work by reducing your taxable profit and thereby decreasing your Corporation Tax. However, the scheme is designed to help companies even if they are in profit or not, so if you owe a small amount of Corporation Tax or even none, the scheme can still provide you with cash in exchange for “surrendering” some of the tax loss that has been created.