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Which businesses can claim R&D tax relief?

Date: 12/05/2022 | Written By: Karl Hodson

Does my business qualify for Research & Development tax credits?

Governments worldwide operate schemes designed to financially incentivise investments into research and development (R&D), typically with an emphasis on science and technology.

In the UK, the government has for some years now been offering incentives in the form of Corporation Tax reliefs in relation to R&D projects, including those that don’t ultimately yield any successful outcomes.

These reliefs are available specifically on projects that pertain to science and technology, and not to potential advancements in social sciences or theoretical fields, which might include economics or advanced mathematics.

Incentivising innovation

From the government and HMRC’s perspective, what they want to see from companies aiming to qualify for R&D incentives are advances in specific fields, which means there needs to be some evidence from applicants of new ground being broken.

Initially this means that a company must show what they are focusing on or aiming to demonstrate has not been achieved before and could not simply be deduced by someone who is an industry expert.

Another part of the picture is that companies applying for these reliefs need to be able to demonstrate to the relevant parties how they intend to overcome particular technological or scientific uncertainties.

There are R&D tax reliefs designated specifically for small and medium sized enterprises (SMEs), which qualify as companies with no more than 500 members of staff. Research and Development Expenditure Credits are also available for larger companies that can reduce their tax liabilities by around 9 per cent in relation to their qualifying expenditure.

Patent Box tax reliefs

Another important element of the UK’s R&D tax relief regime relates to patents. So-called Patent Box tax reliefs have been available in the UK since 2013, with the aim being to encourage companies to develop profitable innovations.

Patent Box reliefs effectively give businesses the chance to benefit from a 10 per cent Corporation Tax rate in relation to income from the commercialisation of a patent. Those tax advantages are accessible to any company that holds an interest in a patent and the associated reliefs can be claimed from the moment a successful application is made.

Video games tax relief

Having been introduced in 2014, the video games tax relief is designed to encourage innovation and development within what has for some time been one of the UK’s most vibrant creative sectors.

The relief can be claimed in conjunction with other forms of R&D tax relief so video game companies across the country have considerable tax-related incentives to innovate and produce high quality products.

Getting the right advice

As we’ve seen, there are quite a number of different R&D tax incentives in place in the UK, with the government viewing these mechanisms as significant drivers of dynamism within the economy.

From an individual company or director’s perspective, it’s important to get the right advice from relevant experts to ensure that the potential benefits can be maximised. The incentives system isn’t designed to be complex or off-putting to potential applicants but, as ever with business tax considerations, seeking the support of relevant advisers can be important in terms of providing clarity on all the key issues involved.

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