If you undertake research and development work, there are two ways in which you can obtain financial support:
- Innovation, Research & Development Grants, and
- Research & Development Tax Credits
Grants
In 2001 the UK government introduced the SMART scheme to encourage research and development (R&D) within SMEs. The principle is to achieve a more competitive Britain through developing technologically innovative products and processes.
Under the new SMART grant scheme there are three different types of project that will attract grant funding. As with all government grant schemes, the grant awarded is a percentage of total “qualifying” expenditure incurred on the project and is paid retrospectively following proof of expenditure
Proof of Market Grant:
A 60% grant of up to £25,000 is available to facilitate the testing of an innovative idea or new technology in the market place. A project can be for up to 9 months.
Proof of Concept Grant:
A 60% grant of up to £100,000 is available to explore the technical feasibility and commercial potential of technological advances, new products or innovative processes. A project can last up to 18 months.
Development of Prototype Grant:
A 35% - 45% grant to a maximum of £250,000 to fund the development and protection of technologically innovative products, services or processes
For more information on grants contact one of our business development specialists on 01236 739280 or access more information online here.
Tax Credits
Research and Development (R&D) tax relief was introduced for a number of qualifying expenditures incurred on relevant R&D work from 1st April 2000. Until 1st April 2002, the scheme was available to SMEs only. From 1st April 2002 onwards the R&D relief was extended to include large companies.
Designed to encourage innovation and excellence in UK companies, the Tax Credits offer enhanced tax reliefs on qualifying R&D activities and associated costs for limited companies.
HMRC defines R&D activities as those which “directly contribute to achieving an advance in science or technology through the resolution of scientific or technological uncertainties”. This definition actually encompasses a wide range of commercial activities, many of which a reasonable individual would assume not to be covered by the above definition.
‘Appreciable Improvements’
HMRC regard those activities which are designed to improve something or duplicate its effect (by seeking an “appreciable improvement” to existing technology) as R&D activities which qualify for R&D reliefs. If the improvements sought by the company would be regarded by a competent professional (i.e. company employees) to be “non-trivial” and “not readily deducible”, those activities meet the criteria for R&D tax credits.
‘Blue Sky’
R&D activity does not have to be “blue sky” innovation, nor does it have to compose of creating new technologies. Companies should be aware that they may well be falling into the realms of R&D without actually knowing.
How does the R&D tax relief work?
HMRC will allow an extra 125% (30% for large companies) of identified costs to be written off against taxable profits.
Current corporation tax rates range from 20% to 24% which means substantial savings can be made. Loss making companies are not excluded from the benefits, and tax credits can be claimed on the losses enhanced by the R&D expenditure instead of carrying the losses forward to offset against future profits. Retrospective claims can also be made for the past 2 accounting periods which can often result in a significant repayment of corporation tax.
The expenditures allowed as part of any R&D claim fall into 4 key categories:
- staff costs;
- consumables;
- subcontract labour;
- and heat and power costs
Beneath a veil of complicated legislation lies a hugely beneficial and enabling tax incentive which many companies are ignoring for fear of complicated information gathering and unwanted tax investigations. This is simply not the case.
Make sure your company is not missing out. Call us on 01236 739280 or access more information online here.