R&D tax relief was introduced by the UK Government in 2002 and is intended to support companies undertaking genuine research and development activities and qualifying projects, that seek an advance in science or technology and overcoming scientific or technological uncertainty.
A claim may reduce a business’ Corporation Tax liability, physical tax credit or, depending on the company’s position and the applicable scheme rules, result in a payable credit.
The Four Benefits of Claiming R&D Tax Credits
There are four main benefits of claiming research and development (R&D) tax credits for businesses in the UK. They include cash flow support for projects, lowering the costs of innovation, allowing reinvestment into further projects, and aiding growth for new and established businesses.
1. Cash Flow Support
A key benefit is an injection of cash flow, as companies that engage in R&D activities often incur significant costs before achieving viable end outcomes, particularly where work involves technical uncertainty or extended development phases.
By providing a tax saving or a cash repayment, R&D tax relief can support a business’ activities and aid with R&D activities or upfront costs. This can ease short-term funding pressures and support businesses during periods where resources are heavily committed to development.
2. Reducing the Cost of Innovation
R&D activity typically involves numerous trials / iterations, unsuccessful testing and the need to overcome scientific or technological uncertainties. As such businesses would usually involve at least one of the following expenditure categories:
- Staffing costs
- Consumables
- Software
- Specific Subcontractor or Externally Provided Workers activities
The above are subject to the detailed rules and restrictions that are outlined with Corporate Intangibles Research and Development Manual 80000. By helping to reduce the net cost of qualifying R&D activity, the relief can help businesses pursue advanced or higher-risk projects, that may otherwise be limited by cost.
3. Supporting Reinvestment
In practice, many companies use the benefit arising from a successful claim to support further innovation. Whether this is through additional staff hiring, further testing or subcontractor activities and the next phase of TLR / development, to name a select few. In this way, the relief can help businesses continue investing in development work.
4. Support for Growing and Established Businesses
R&D tax relief is applicable to a wide range of businesses. For growing companies, the benefit can be particularly valuable where cash or investment is limited and development costs are incurred ahead of revenue generation. For example, if a loss-making SME claims R&D it can benefit from the Enhanced R&D Intensive Support, which provides an additional uplift of 86%, alongside the 100% deduction, enabling a surrender of losses at 14.5% which is not liable to tax.
For more established businesses, it can support ongoing investment in improving products, processes, systems, services or software, helping them remain at the forefront of the latest technological advancements and attempting to ensure the UK remains as a technological powerhouse.
Talk to an R&D Tax Specialist Today
If you would like to arrange a meeting to discuss what opportunities there may be for your business, or any of the R&D services that Streets Innovation offers, please use the link below to book a time to speak with the team.
