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Conditions That Need To Be Met For Claiming R&D Tax Credits

Date: 29th September 2014

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.

Conditions:

  • 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.

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