R&D Tax (Research and Development Tax) Credits are a UK Tax incentive that is designed to encourage organizations to invest in R&D.
Companies that spend money developing new processes, products, or services are eligible for R&D Tax Relief.
Tax deductions for R & D are an aid in the form of a tax incentive that is applied in Corporation Tax and that is intended for companies that are investing in research, development, and technological innovation.
Taxation and discounts for R&D activities:
Among the instruments available to the administration to promote business innovation are tax incentives and bonuses. Tax incentives are based on deductions in corporate tax for carrying out research and development projects and/or technological innovation. The bonuses in the business quota of the social security of the research staff.
These instruments are horizontal, and their application is free and general (there is no competitive competition or a predefined budget limit). They are aimed at encouraging private sector initiatives, without conditioning the innovative field to which the company is oriented. Also, they are not limited to certain areas, programs, or initiatives.
Deduction percentages and application limits:
Companies that are carrying out a Research and Development (R&D) project can achieve a higher percentage of return than those that are doing technological innovation
- In the case of R&D, the tax deduction can mean savings of up to 33%.
- In the case of technological innovation, the percentage has risen throughout the latest legislative changes, reaching 11%. In addition to being applicable for technological innovation projects. This category of deduction also includes tax deductions linked to the development of samples or the development of video games.
In the case of samples, it applies to footwear, leather goods, textiles, toys, furniture, and wood companies.
- Such is the return that tax deductions for R&D can suppose, that in some cases the company can generate more deduction than it can apply in the Corporation Tax.
In these cases, the entity has three possibilities: apply the deduction, following the ordinary system, which allows it to apply the deduction generated up to 18 years; or apply it without limit in the quota or request the payment, in both cases meeting a series of requirements.
Characteristics of tax deductions for R&D?
- They can be applied for up to 18 years.
- There is no competitive competition, they are a right that the company has.
- Projects can be multi-year and multi-objective.
- They offer total fiscal and legal security.
- The deduction percentages are very high compared to other aids.
- The calendar is clear since the deduction is applied in the Corporation Tax.
- The percentages of the deduction for technological innovation are increasingly high.
- They are compatible with other aids.
- They are not taxed.
Why you should claim R&D Tax Reliefs?
There are many reasons why you should apply for R&D Tax Reliefs for your organization.
- It considers a significant “Free” source of cash flow to invest in further to develop new products or hiring any new staff. This way, your company will grow ultimately.
- It ensures the stability of the businesses with better financial planning and reduces the risk of a future investment that demonstrates that your business is savvy for investors.
- R&D Tax Relief creates a noteworthy reduction in your future as well as current tax liabilities.
- You will get competitive benefits since 75% of organizations are missing out on this relief’s benefits.
- It will help you to expand the new market and facilitate job creation and security.
- This benefit can lead to further funding sources like EIS and SEIS.
- However, you cannot claim for:
- Capital expenditure
- The trademarks and patents cost
- Rates or rent
- The cost of the land and
- The distribution and production of services and goods.
Benefits of R&D Tax Deductions:
Tax deductions for Research, Development, and technological innovation are a tax incentive, in the form of self-assessment, that has existed for several decades.
What happened is that companies, especially SMEs, were somewhat suspicious when using them for fear that their application would lead to a larger inspection. Faced with this situation, the competent administration orchestrated a path that offered total legal security to companies that wanted to achieve a return on the effort made in R&D. For this, a procedure was articulated, regulated, that would allow entities to apply the deductions calmly and rigorously.
This incentive is very attractive since, in addition to the return percentages it entails, it has other advantages that make it a very interesting indirect aid.
Among these advantages, it should be noted that, unlike non-refundable grants, in this aid, there is no competitive competition, which means that it is a right that the company has and that it can be applied regardless of the size of the company, the sector or of the location of this.
Innovation is a key opportunity for you to differentiate yourself from other competing companies and is necessary for both large companies and SMEs.
What benefits you have for your enterprise?
- Develop new products and more competitive processes.
- It enhances the degree of specialization and professional development of people.
- Assign resources according to the contributions that each worker can make and not according to the hierarchical level.
- Strengthen synergies between colleagues.
- It is more competitive and flexible against the market.
- Increase efficiency in the use of resources.
- Improve coordination and communication.
- You can have proper planning.
- It correctly documents project results so that you can use the information in future projects.
- Consolidate the culture of R&D within your organization.
At Grantly we offer the best services in which we connect R&D advisors and businesses who are looking for R&D grants in the UK.
If you would like assistance with claiming R&D tax reliefs, do not hesitate to get in touch with us and we will connect with the best, experienced, and reliable R&D advisors.