Research and Development (R&D) tax relief is a government initiative designed to encourage innovation and investment in scientific and technological advancement. It provides businesses with significant financial incentives for undertaking qualifying activities. Our expert R&D Eligibility Calculator provides a simple process for you to understand if you should be claiming. It also gives you an indicative figure on what you could look to achieve from your claim.
Since the UK’s departure from the EU, the government has made significant efforts to champion and advance research and development opportunities for small businesses. These initiatives aim to reduce tax burdens, whilst also positioning the UK as a leading force in technological advancements. In fact, the government has set a specific objective to elevate R&D investment to 2.4% of GDP by 2027. By emphasising these endeavours, the government strives to foster an environment conducive to innovation. This will empower smaller enterprises to contribute to the nation’s overall progress in ground-breaking fields.
We break down what R&D is, the benefits, how to apply, and how Nordens can help you every step of the way.
What is R&D Tax Relief?
R&D tax relief is a tax incentive offered by the UK government. It sets out to support and reward businesses investing in research and development activities. The scheme aims to foster innovation, increase competitiveness, and drive economic growth. By providing tax relief, governments hope to encourage companies to take risks and explore new avenues of development.
Who Qualifies for R&D Tax Relief & How To Apply?
To benefit from research and development tax relief, businesses must meet certain criteria. The project must relate to your company’s trade, either an existing one, or one that you intend to start up based on the results of the R&D. To claim you need to explain how a project:
- looked for an advancement in the field
- had to overcome the scientific or technological uncertainty
- tried to overcome the scientific or technological uncertainty
- could not be easily worked out by a professional in the field
Your project may research or develop a new process, product or service or improve on an existing one.
To claim R&D tax relief, businesses typically need to compile detailed documentation outlining their R&D projects, expenditures, and the technical challenges they faced. This information is then submitted to the relevant tax authorities along with the tax return or separate Research and Development claim form.
At Nordens, we provide a detailed and high-quality service in Research and Development claims. This includes going over all financial information from clients meticulously with a fine toothcomb. It ensures all claims are legitimate and properly verified by ourselves before submitting to HMRC for approval. We pride ourselves on providing a genuine service within research and development, helping to improve UK infrastructure and innovation for the greater good.
What Are The Different Types of R&D Tax Relief?
There are typically two types of research and development tax relief available:
R&D Tax Credits
These provide a reduction in a company’s tax liability or a cash payment for companies that are not yet profitable. It allows businesses to claim a percentage of eligible R&D expenditure as a tax credit.
These allow businesses to deduct a portion of their research and development expenditure directly from their taxable profits.
What Are The Benefits of R&D Tax Relief?
Implementing R&D tax relief can offer several benefits to businesses, including:
R&D tax relief can significantly reduce a company’s tax burden or provide cash payments, allowing businesses to reinvest in further R&D activities or other areas of their operations.
By encouraging innovation, research and development tax relief enables businesses to develop new products, services, or processes, leading to enhanced competitiveness in the market.
Encouragement for SMEs
R&D tax relief often provides additional benefits to SMEs, including higher tax credits or enhanced deductions, recognising the importance of their contribution to innovation.
R&D tax relief can incentivise businesses to collaborate with universities, research institutions, or other companies, fostering knowledge exchange and joint ventures.
Reputation and Funding Opportunities
Companies involved in research and development activities and benefiting from tax relief often gain a positive reputation. This makes them more attractive to investors and potential partners. Additionally, it may open doors to further funding opportunities, such as grants or venture capital.
We hope this has outlined to you exactly what R&D is, the benefits it can bring about, and how Nordens can help assist you in R&D applications. If you’d like to know any further information on anything mentioned, or anything accounting related for that matter, please do not hesitate to get in contact with us at Nordens, where one of our trusted advisors would be happy talking you through your query.