Innovation is essential if for any business that wishes to attract customers, compete against rivals and succeed into the long term. But for many small businesses the prospect of embarking on a Research and Development (R&D) project may seem daunting, bold and risky. The UK government’s Tax Credit Scheme provides welcome support. For small and medium enterprises, the tax credit of 230% is worth taking into account.
It means that for every £100 of qualifying costs, a small business could have the income on which Corporation Tax is paid reduced by an extra £130 on top of the £100 that was spent.
In the case of a loss, this tax relief can be converted into tax credits.
It’s apparent that many small businesses are not claiming the R&D tax relief that they’re entitled to, or are reluctant to invest, because now HMRC is to launch a new initiative, called ‘Making R&D Easier’, specifically targeting small businesses.
Claim the R&D relief you’re entitled to
This initiative aims to increase the uptake of R&D tax relief by raising awareness and making it easier to apply for tax relief. A publicity campaign is due to be launched as well as direct communication with taxpayers, including email and social media. HMRC plan to check records to identify businesses which qualify for R&D tax relief but aren’t yet claiming it.
Do you have future R&D plans that fall within the scheme?
New guidance is on its way
To make it easier to claim the relief, improved guidance will be provided by HMRC including a clearer definition of ‘appreciable improvement’. Guidance will cover the interaction between R&D and the State aid rules, R&D reporting, and software R&D. Tarrant Green & Company can support you with advice on tax matters.
Small companies Advance Assurance from November 2015
Until now, companies faced uncertainty because they would have to back an R&D programme and incur expenses but couldn’t be sure whether their claim for relief would be accepted. This would only be known once they filed their tax return after they had incurred R&D costs. To mitigate against this risk, from November 2015, small businesses (with a turnover of less than £2m and fewer than 50 employees) who haven’t applied for R&D tax relief before can apply for Advance Assurance. Once assessed, eligible projects will be granted Advance Assurance for 3 years, provided that there are no material changes to the project.
For advice on corporation tax and R&D tax relief, you can Tarrant Green & Company on +44(0)1438 869 644 or email firstname.lastname@example.org