Projects that qualify as R&D
The potential for recognising Research & Development is vast – in reality, it exists in every industry. In addition, if you are claiming for the first time, you will usually assert R&D tax relief for the previous two completed accounting periods. Research & Development can occur in any industry. It can be found in everything from cheese production to chemical engineering, construction, and digital creation.
The work that qualifies for Research & Development relief must be part of a particular initiative to make a scientific or technological advance. It cannot be a breakthrough in social science, such as economics, or a scientific field, such as pure mathematics.
The project must be related to your company's trade - either a current one or one that you intend to start based on the Research & Development results.
To qualify for Research & Development tax credits, you must demonstrate how a project will:
- be hoped for a breakthrough in science and technology;
- be necessary to overcome uncertainty;
- attempt to resolve any confusions;
- be the only way in the field to solve the problem.
If your project meets the HMRC concept of Research & Development, as described above, you might be eligible to claim Corporation Tax relief.
Research & Development tax breaks come in a variety of flavours
The government's Research & Development requirements are intentionally broad. If your organisation, regardless of size or sector, is taking a risk by attempting to ‘resolve scientific or technological uncertainties,' you may be engaging in a qualifying activity.
Research & Development Tax Credits for Small and Medium-Sized Enterprises (SME)
If you are a SME, you can claim SME R&D relief if you have:
- less than 500 employees;
- a turnover of fewer than 100 million euros, or a balance sheet sum of less than 86 million euros.
When determining whether you are a SME, you need to consider related companies and partnerships.
SME Research & Development relief enables businesses to:
- deduct an additional 130% of their qualified expenses from their yearly earnings, in addition to the standard 100% deduction, for a total 230% deduction;
- claim a tax credit if the corporation is losing money, worth up to 14.5% of the surrenderable loss.
Credit for Research and Development Expenditures
This replaces the previous relief provided under the large business scheme.
For working on Research & Development ventures, large corporations may receive a Research and Development Expenditure Credit (RDEC).
It can also be said by SMEs and large companies that have been subcontracted by a large corporation to do R&D work.
The RDEC is a tax credit that was worth 11% of your qualified R&D expenditure up to December 31, 2017. It was raised to:
- From 1 January 2018 to 31 March 2020, the rate was 12%;
- From April 1, 2020, the rate was 13%.
In order to demand Research and Development tax reliefs, you must demonstrate that the R&D required discovery, testing, and review to improve it. Therefore, you must be able to justify the work you did to address confusion. This can be a simple explanation of your project's successes and shortcomings.
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