FINANCE
BY ADAM LACCHIN , DIRECTOR AT AZETS
R & D tax relief : Are you maximising the opportunity ?
MANY SMES ( SMALL AND MEDIUM-SIZED ENTERPRISES ) STILL DON ’ T REALISE THAT THEY QUALIFY FOR RESEARCH AND DEVELOPMENT ( R & D ) TAX INCENTIVES . AS BUSINESSES CONTEND WITH THE ECONOMIC CHALLENGES AND THE CONTINUING THREAT OF RECESSION , THIS RELIEF COULD PROVIDE A VALUABLE CASH INJECTION .
Significant changes from 1 April 2023 represent a reduction of more than 30 % in the tax benefit to most SMEs undertaking R & D activity .
Larger companies or those making a claim under the R & D expenditure credit ( RDEC ) scheme will see an increase from 13 % to 20 %. The small and medium enterprise additional deduction rate will reduce from 130 % to 86 %, and the SME payable credit rate will , with limited exceptions announced in the recent budget , decrease from 14.5 % to 10 %.
Planning around R & D tax is crucial to achieve the best outcome . Adam Lacchin , director at Azets , explores the key details below .
What is R & D tax relief ?
The R & D tax relief scheme is designed to incentivise innovation within the UK and reward companies conducting research and development . It ’ s important to highlight that the benefit is only available to limited companies .
The scheme falls into two brackets :
• The Small Medium Enterprise ( SME ) scheme
• One for large companies , the Research and Development Expenditure Credit ( RDEC ) scheme
The qualifying criteria for the SME scheme is as follows :
• An organisation with fewer than 500 Full- Time Employees ( FTEs )
• Annual turnover not exceeding £ 88.5m or balance sheet not exceeding £ 76.1m
Other factors that can impact SME status include :
• Group structure and associated enterprises
• Grant income
• Contractual relationships
Why is it so important to get it right ?
HMRC are closely monitoring claim submissions due to fraudulent activity and a year on year increase in filings . It is therefore critical to partner with a trusted advisor and ensure the claim is robust and compliant .
For companies undertaking R & D projects and subsequently incurring R & D expenditure , there could be significant tax savings or cash repayments available . The benefit of R & D tax credits can vary considerably depending on how the relief is applied .
What costs can be claimed ?
Broadly , to qualify for an R & D tax credits claim , a company ’ s project must seek to achieve an advance in science or technology through the resolution of scientific or technological uncertainties . This R & D definition can lead many to believe that the activities they undertake and expenditure they incur are not qualifying . Some business owners and senior stakeholders are therefore not making the most of R & D incentives and the tax savings the scheme offers .
How to identify an R & D opportunity
Some high-level questions to ask to help identify R & D claims opportunities are :
• Are you developing new or improving existing products or processes above what is available in the market ?
• Have you encountered a number of failures within a project where the solution wasn ’ t readily achieved by your experienced workforce ?
• Have you had a project fail due to technical reasons ?
• Have you combined different technologies in a way that hasn ’ t been achieved to date , with no guarantee of success ?
• Have you had to contract any specialist design functions to support a project ?
We are here to help
We will assist our clients in preparing a technical and financial analysis of their claim , in accordance with HMRC ’ s new disclosure requirements .
Once filed , we will see the claim through to its processing by HMRC including ensuring any refund is sent directly to you by HMRC . In the event that HMRC wants to review the claim , we can handle the full enquiry process on your behalf .
If you have any questions on the scheme and the process for claiming R & D tax relief , please get in touch .
Adam Lacchin Director at Azets
T : 01622 690666 E : adam . lacchin @ azets . co . uk
Local offices : Ashford : 01233 629 255 / Canterbury : 01227 454 861 Maidstone : 01622 690 666 / Orpington : 01689 827 505 Sandwich : 01304 249 997
Accounting | Tax | Audit | Advisory | Technology www . azets . co . uk
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