Can my start-up benefit from R&D tax relief?


Date: 22 August 2018

Can my start-up benefit from R&D tax relief?Anyone who's been part of a start-up organisation knows how many tasks there are to juggle. Staff need to be hired, sales need to be made and more efficient processes need to be implemented.

For businesses engaged in research and development projects, there's often an extra layer of management needed when it comes to cash flow - how do you continue to generate money while trying to improve your products?

If your company is in this position, it could be time to investigate the benefits of R&D tax relief. Here, we outline what they are and how they could help your projects to succeed.

What is R&D tax relief?

Launched in April 2000, research and development (R&D) tax relief is designed to help organisations of any size - including start-ups - invest in innovative activities, which in turn could stimulate the economy.

Start-ups fall into the SME category when making a claim, which means a more generous reward than for large businesses claiming under the Research and Development Expenditure Credit (RDEC) scheme.

If your start-up is aiming to make an advancement in science or technology by overcoming a particular challenge that cannot currently be tackled, it's likely to be eligible for the relief. You may, for example, be developing an alternative to plastic food packaging, or creating an AI software than can identify the onset of a disease.

How much is R&D relief?

As a start-up, it's possible to recoup a significant amount of your research and development expenditure. The rate of relief is such that for every £100 spent on an R&D project, your taxable profits are reduced by £130 in addition to the money spent.

With the potential to clear your corporation tax bill entirely, why wouldn't you apply?

Of course, claims are subject to certain conditions. So-called 'qualifying costs' are those which relate directly to the activity, such as employee wages and pension contributions for the time they are working on the project, as well as things like utilities and materials that have been obtained or used in connection with it.

Making an R&D relief claim

We'd always recommend seeking assistance from a tax specialist when you make a claim for R&D tax relief. That's because it's easy to get wrong, and the last thing you need alongside your other business concerns is the threat of an investigation from HMRC.

To make a claim, you'll need records of all the costs associated with your research project, which must then be totalled and added to your corporation tax (CT600) form. You'll need to calculate the expected relief yourself, and supply supporting documents to evidence your eligibility for the credit.

At the very least, it's best to get a financial or tax adviser to check the submission before it's sent - not only for accuracy, but also to ensure you've claimed the maximum possible amount.

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