How Does R&D Tax Credit Work?

R&D tax credit

If you are associated with the technology world in the UK, you must have heard about the R&D tax credit given to certain companies. This often makes people wonder what are the criteria of the government for choosing these companies for such tax credits. Well, the basic purpose of providing R&D tax credit is to promote the inclination towards research and development by the companies and bring innovation and other new activities to an upgraded level. This research and development will uplift the economy to an entirely new level. Moreover, the projects that come under research and development are mostly related to technology and science.

However, according to HMRC the vision of research and development is even broader. If a person is investing money into the technology, HMRC considers this as well. Cloud data, IT systems, and computing also comes under this. This is why the range of expense business activities is also promoted in several ways. Especially when it comes to the sudden restrictions in the world, companies will have to take innovative measures to carry on the activities without any interruptions. This article is based on frequently asked questions. This compilation will help you to develop a better understanding of what is the R&D tax credit, how it works for you, what is the eligibility criteria, who will qualify, and how much amount is provided if you qualify.


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What are Research and Development Tax Credits?

In simple words, we can describe the R&D tax credit as an investment that is done for a business to develop in terms of knowledge about their specific field and bring in new business activities and innovation to uplift the business and the economy eventually. This will also become a reason to increase the streams of revenue. When the business will follow a new plan to make new products, the market will be uplifted also. The existing processes will be improved in a better way.

Moreover, as per the instructions of HMRC, the projects should be based on technology and science that can make an advancement in the field to qualify for the R&D tax credit. Some people confuse it with mathematics and general sciences, however, to qualify you will have to stick to the specific fields. The projects will have to be relevant to your business activities and must have a purpose behind the advancement of your business activities.


What is the Way for the R&D Tax Credit to Work for You?

Generally, there are known to be two types of R&D tax credits. Your business size will matter a lot in the decision of whether you qualify for which type of tax relief. Also, look into the details of whether your project is subcontracted to your company or not, this is also a part of the consideration before you qualify for the tax relief. If your company staff is less than the figure 500, you must apply for small business or medium-sized enterprise tax relief. This kind of tax relief will offer the following to the companies:

  • If your business is going in loss you can make claim for tax relief.
  • There can be a good amount of deduction from the annual profit that the business is making.


What are the Eligibility Criteria for an R&D Tax Credit for Your Business?

To get the benefits of the R&D tax credit, your business must meet certain criteria to be eligible. Only then it will be possible to qualify for tax relief successfully. For the incentives of the R&D tax credit, you must meet the following listed points:

  1. Your business will have to invest a fair amount of money in innovative projects based on technology and science.
  2. Your company will carry out activities that are purely for research and development to bring advancement in your business type.
  3. If you are a limited company in the UK, this will be subject to bringing in the corporation tax and other such obligations as well.


Who Qualifies for the R&D Tax Credit?

The possibility of the R&D tax credit taking place is doable in any sector of the industry. It can be any possible carry out of the business activities like renewables, construction, manufacturing, chemical engineering, cheesemaking etc. The pure idea of research and development is quite broad in nature and it tries to cover the possible sectors. All you need to consider is to be relevant to the criteria to qualify for tax relief. This will be a great uplifting factor to bring advancement in all the fields of the sector around technology and science. This is a great way to bring innovations and apply new ideas as well.


How Much Amount will I Get After Claiming the R&D Tax Credit?

This depends a lot on the amount of money you have invested as a company to do the research and development. This will be considered before you are given the benefits of the R&D tax credit. You will have to focus on the enhanced expenditures of your business also. These enhanced expenditures can be further deducted from the taxable profits later. This will result in reducing your corporation tax when your business is making profits. In case your business is going to lose, there will be a suitable option of cash credits in this scenario. As per the suitability of the situation, there even can be a combination of both factors. Your unique business needs will decide this.


The Bottom Line

Now that you have gathered a fair amount of information about the R&D tax credit in the UK, we can bring the discussion towards wrapping up. The idea of the R&D tax credit is quite uplifting for businesses to focus on bringing new business activities and innovation for the sake of advancement in the market. The more your company will invest in research and development, the more you will get the benefits in form of tax credits. However, you will have to be considerate about the eligibility criteria and what exactly qualifies for the tax relief.


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Disclaimer: All the information provided in this article on R&D tax credit in the UK, including all the texts and graphics, is general in nature. It does not intend to disregard any of the professional advice.