R&D can be defined as “a work to resolve scientific or technological uncertainty aimed at achieving advancement in science or technology”.
It’s estimated that about 6,500 or more small or medium-sized companies claim tax credits for R&D and approximately 37% of these companies increased their R&D budget as a result.
In the case of a company that is making a profit is entitled to claim a more generous relief as a deduction from its overall corporation tax bill. Large companies have a different scheme.
- First and foremost a company should be paying corporation tax to qualify for making an R&D tax claim
- The R&D tax credit cannot be claimed by a sole trader, partnership or any other body that does not pay corporation tax
- A company should be a going concern and the latest accounts should have been prepared under the going concern basis
- The accounts must indicate a positive trend and shouldn’t give any signs of not being able to continue in business meaning company shouldn’t solely rely on the R&D tax credits to survive
- A claim may only be claimed for revenue expenditure (premises costs and wages)
- Capital expenditure can’t be included (though there is a separate capital allowance for R&D)
R&D revenue expenditure:
- Expenditure for cost incurred by employing staff
- Expenditure for paying an agency for workers directly involved in R&D activity.( extended to allow cases when additional parties provide workers)
- Expenditure for consumable and transformable materials used in R&D work
- Expenditure for power, water, fuel and software etc.