The Research and Development (R&D) Tax Credit scheme has been around for more than a decade now, but is still commonly misunderstood among SMEs. Many presume that it has nothing to do with them, because they’re not immersed in the science or technology sector themselves.
This is a misconception, however. Conducting research and development doesn’t necessarily mean you need to don your goggles and white coat and spend hours in a science lab. Much of the time companies spend on R&D is dedicated to the design and development stages of the project, and expenses paid out in these formative stages are still eligible for relief.
What is the intention?
The idea behind the scheme is simply to encourage R&D efforts within the UK’s business network. By subsidising the work of those companies that plough time and money into these projects, the Government hopes that R&D can be used to accumulate knowledge and drive the British economy.
The scheme applies to both SMEs and large companies, with the former enjoying more generous relief rates, but the latter faced with more regulations with which to comply.
Thoroughness pays
Though experimenting can bear fruit, it’s not enough to simply dabble in R&D with little idea of what you’re going to do next and what you hope to achieve from it. You need to clearly identify your goals and ensure your plan has a beginning, middle and end in order for HMRC to support it.
For this reason, be sure to document everything and keep your records of the process up to date. Remember that, even if the project does not go as planned, you can still claim relief on the expenses of failed or aborted R&D programmes, provided you have recorded them thoroughly and they meet HMRC criteria.
Taking the plunge
Starting an R&D project is not a decision that should be taken lightly, but it is one that can reap big rewards if done well. Encouragingly, Chancellor George Osborne announced in this year’s budget that the relief rate for loss-making SMEs has been increased by 3.5%, so it does appear that Westminster is supportive of the scheme and is giving the flexibility it can to businesses.
If you are at all unsure of whether or not what your company is doing, or plans to do, is eligible for tax relief, remember that your outsourced accountancy service is only a phone call away. By letting Sollertia handle your accounts and identify any reliefs you can claim, you can invest more of your time into the R&D projects that can benefit your business.