Financial Matters - Check your eligibility for tax credits

John Fairhurst
John Fairhurst

YOUR company could be eligible for tax relief on 225 per cent of some of its expenditure, yet many business owners are unaware of this, or believe they cannot qualify.

Relief at 225 per cent means that most such companies paying corporation tax at 20 per cent will benefit from a tax saving equal to 45 per cent of the research and development (R&D) expenditure.

R&D tax relief is available to companies that carry out projects aimed at advancing knowledge or capability in a field of science or technology, but such research can encompass more than you might think.

Work on innovating, improving or developing a product, service or process may be eligible, as long as it seeks to advance knowledge by resolving general scientific or technological uncertainty.

The project must be related to the company’s trade or a trade the company intends to start up subject to the results of the R&D.

There is no minimum expenditure to qualify for R&D tax relief and the company does not need to have an R&D department or operate in any particular business sector.

Providing the project meets the conditions, a company can claim tax relief on revenue expenditure incurred in carrying out R&D including the cost of staff, materials, utilities (power, water, fuel), and computer software. Capital R&D expenditure qualifies for a 100 per cent first year capital allowance. There are special rules for companies that subcontract their R&D.

Relief at 225 per cent is available to small and medium-size companies (SMEs), whereas large companies can claim relief at only 130 per cent.

For this purpose, an SME is a company with fewer than 500 employees with either an annual turnover of €100 million (about £80 million) or less, or a balance sheet not exceeding €86 million, and generally not part of a larger enterprise. All companies qualify for the 100 per cent relief on capital R&D expenditure.

An SME that is not yet profit-making can claim a payable tax credit of 14.5 per cent for revenue expenditure incurred from 1 April 2014, instead of the tax relief. Before that date, the rate was 11 per cent. That means every £1,000 spent results in a cash credit of £326.25 (14.5 per cent of 225 per cent of £1,000).

However the legislation is complex and you are likely to need specialist advice. Please contact us if you wish to discuss this.