R&D tax credits simply explained by Swoop

If your business is investing in a project which is seeking to achieve an advance in science or technology, you could well be entitled to some generous tax credits. These tax credits include investment into technology and IT systems, so it is worth a conversation with our experts at swoopfunding.com.au to find out whether you’ll qualify.

R&D tax credits for small businesses

R&D tax credits are a tax incentive from the UK government, designed to encourage companies to invest in research and development. The scheme was introduced in 2000 and only Limited Companies qualify for R&D tax relief. This scheme can dramatically reduce your tax bill, or you can claim payable cash credits as a proportion of your R&D expenditure.

Claims must be submitted no later than two years after the end of the year in which the money was spent. Two-thirds of the total amount claimed until now has come from companies registered in London, the South East or the East of England. However, R&D tax credits are available to small businesses all over UK and Ireland.

There are different types of R&D relief depending on the size of your company and whether the qualifying project has been subcontracted to you or not.

Small and Medium-sized Enterprises (SME) R&D Relief

Small business R&D tax relief, or the SME tax credit scheme, is accessible if you are a SME with fewer than 500 staff and a revenue of under €100m or a balance sheet total under €86m. The SME R&D tax credit scheme has a more generous rate of tax credit – up to 33p for every £1 spent on R&D.

Research and Development Expenditure Credit

This replaces the relief previously available under the large company scheme. Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.

This can also be claimed by SMEs and large companies who’ve been subcontracted to carry out R&D work by a large company. The RDEC is a tax credit for 12% of your qualifying R&D expenditure.

Is my small business eligible for R&D tax credit?

Your business must be able to demonstrate to HMRC that the product or service you’re claiming for is truly innovative and an advance on what’s currently available in the market. According to HMRC, R&D for tax purposes is a project which “seeks to achieve an advance in science or technology”. R&D is still deemed to have taken place whether or not the project goes on to be successful; it’s the attempt that counts.

You must be able to explain how a project:

• looked for an advance in science and technology
• had to overcome uncertainty
• tried to overcome this uncertainty
• couldn’t be easily worked out by a professional in the field

A commonly-overlooked opportunity which qualifies as an example of ‘using science and technology in a new way’ is in the potential to claim for investment in developing new IT systems, so keep this in mind if you’re wondering whether or not your small business is eligible for R&D tax relief. 

If you think you might be eligible for R&D tax relief, click here to get registered or contact us at swoopfunding.com.au and we’ll be happy to discuss your claim.