From high-tech developers to small organic companies, aspects of traditional R&D (research and development) are present. Product testing, defect correction, and advantage analysis are all everyday parts of the development process. What few companies know, especially SMEs, is that there can be a significant benefit to claiming R&D tax credits.
This blog post will attempt to guide you through the surface-level aspects of the R&D tax system, but you should always contact a business advisor when you are unsure; they can make sure you get all the benefit you are entitled to and can protect you from any unwanted audits.
Why does the R&D tax system exist?
There’s a reason that R&D is particularly special for businesses: it provides significant improvements to the product. However, for every step in the right direction, there are countless missteps and failed approaches. The government recognises this; R&D outcomes are rarely profitable, so the tax system is set up to bear some of this weight and ensure that R&D continues.
On the societal level, R&D provides progress. New technical achievements, medical devices, and transportation systems must all undergo some sort of research testing. The government sees the potential for negative outcomes and costly failures to become deterrents to progress. A society without R&D has a stalled economy. By providing tax relief to R&D helps ensure its continuance.
Who is R&D tax relief for?
The answer is simple: everyone! Well, everyone whose company participates in R&D. There are no rules or regulations determining a specific company size that is eligible, nor is there a specific industry that a business must be a part of in order to qualify for R&D tax credits. Each year, many businesses miss out of the benefits they are fully entitled too, and many of these are SMEs. Checking HRMC documentation for the rules of R&D tax benefits could save you hundreds of pounds!
“Many people believe that R&D tax credits are only for businesses with groundbreaking developments.”
Additionally, many people believe that R&D tax credits are only for businesses with the groundbreaking developments that we see on the news. The government likes to believe that every small business is moving toward some sort of creative and beneficial product, so they provide you with the tax benefit every step of the way. Whether you are early in the process of development and have little more than a concept, or you are about to put your product on the market, you are fully entitled to apply for the credit.
What does the credit actually mean?
Put simply, the credit means that less tax is charged on R&D than on other parts of a business. And while the process was once laborious, the new system of application is much simpler and can provide businesses with significant sums. For example, some small businesses are eligible to receive tax credits of up to 33p for every 1 pound spent on qualifying activities. Small businesses are able to claim more than larger organisations, so the trouble is certainly worth it.
If your business participates in R&D, be sure to look into your eligibility for tax credits. It could save you money and help you continue your development!
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