While business funding is always in demand, tax very often has negative connotations because of the complex processes surrounding its rules and regulations but for businesses that want to utilise every advantage available, it’s probably time to completely change the mind-set.
Tax should be nothing to fear and quite the opposite in fact – did you know tax can actually generate money for your business? Well it can! Take some time to read this guide and you’ll soon have a better understanding of how you can use the tax system to generate money for your business.
The best way to use tax to generate money for your business is to ensure you are taking advantage of all available tax allowances and reliefs. The range of different business taxes is vast but many of them fall under two overall groupings – Corporation Tax and Capital Gains Tax.
Capital Gains Relief includes Entrepreneurs’ Relief, Business Asset Rollover, Incorporation Relief and Gift Hold-Over Relief. Corporation Tax includes Disincorporation Relief, Marginal Relief, CITR (which is relief for creative industries) and the Patent Box, which is applicable if your company makes a profit from patented inventions.
It also includes Research and Development (R&D) Relief, which is the area of tax in which Innovation Plus specialises.
What is R&D Relief?
What is R&D Relief? It’s a type of Corporation Tax relief that may reduce your company’s tax bill or, if your company is loss-making you might choose to receive a tax credit instead by way of a cash sum paid by HM Revenue and Customs (HMRC).
There are two schemes for claiming relief, depending on the size of your business. The SME Scheme applies to companies with less than 500 employees and either an annual turnover of not more than €100 million OR a balance sheet not exceeding €86 million.
This scheme benefits from higher rates of relief – from April 1 2015, the tax relief on allowable R&D costs was set at 230% which means that for every £100 of qualifying costs your organization could have the income on which Corporation Tax is paid reduced by an extra £130 on top of that £100.
For companies with more than 500 employees, they must claim under either the Large Company Scheme or, R&D Expenditure Credits (RDEC) which for R&D expenditure incurred on or after 1 April 2013, provides a cash credit. As this will be accounted for “above the line”, as a reduction in profit before tax, this is known as the “above the line” tax credit.
Under the RDEC, a credit of 10% (11% from 1 April 2015) of the qualifying expenditure is deducted from a company’s corporation tax liability or paid in cash. This could be of significant benefit to many loss-making companies unable to take practical advantage of the Large Company scheme. The RDEC has a current post tax benefit of 8.8% compared to 6% under the Large Company scheme. From 1 April 2016, non-SMEs will only be able to claim under RDEC.
What qualifies for R&D Relief?
The definition of R&D for tax purposes is when a project seeks to ‘achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty’. While this may sound complicated and maybe even daunting, it often boils down to having clever people solve difficult technical problems, something that many companies do on a daily basis without even considering it as ‘R&D’.
This is important to understand, for it makes the distinction that qualifying companies need not necessarily be in the research and development field. Innovation Plus have assisted companies in numerous industries including software development, architecture, manufacturing and Clean technology.
One of the most difficult areas for companies considering making a claim lies in assessing what qualifies for R&D. The key factor to bear in mind is that R&D is found throughout a company’s activity and not just in a narrow area performed exclusively by the R&D team. What qualifies as R&D for tax purposes is far broader than the traditional idea of what R&D is – it’s not confined to staff in white coats spending all day in laboratories.
Can your company claim?
If your company is subject to UK Corporation Tax – even if you are not currently paying tax – and you answer yes to any of the following questions then you could be eligible to claim R&D tax relief:
Do you employ scientists, engineers, software developers or technicians?
Have you developed a new or improved product, or process?
Have you developed software in-house?
Are you a Small or Medium-sized Enterprise (SME) that has subcontracted out any of the above?
The benefit can be a cash credit to your business that is worth as much as 33.4% of your company’s expenditure on Research and Development. What this basically means is that if you employ only four engineers or software developers performing eligible work and earning a salary of £30,000 each, under the R&D tax credit scheme your company be entitled to a cheque from HMRC for almost £40,000 every year.
How can Innovation Plus help?
Why use Innovation Plus? There are several outstanding reasons. We have a 100% claim success record; you only pay if your claim is successful; there are no HMRC enquiries from our claims; we identify more R&D than our competitors and there are no set up or hidden fees.
We have a proven and robust ten-step process, as follows:
Collect Technical Information
Collect Financial Information
Map Costs onto Technology
Prepare R&D Claim Pack
Liase with HMRC
R&D Tax Credit Received
For further information and to take the first steps to making a claim, call us now on 020 3004 9243 or get in touch using the contact form and start saving tax for your business!