Research and Development (R&D) tax credits are a government incentive designed to incentivise UK companies for investment in innovation. In fact, it is a valuable source of cashflow for businesses. With the current pandemic, there have been a number of grants made available to companies, which has had a significant knock-on effect to current R&D claims, and also to new legislation announced by the government.
Adam Maurice, Director at Fusion, and Vanisha Narayan, Head of Accountancy, recently presented a webinar on recent changes from the autumn budget in relation to R&D tax credits, which provided insightful tips on how to maximise R&D claims. Click here if you wish to replay it.
What are R&D Tax credits
Essentially R&D tax credits are a government backed scheme, and an incentive for businesses, across any sector, to encourage innovation. This is an important point as most people we speak to think that R&D is purely for companies who employ people in white coats – the scope for R&D is so wide that many SMEs don’t believe that they can claim. SMEs that are eligible can deduct an extra 130% from their taxable profit.
Changes from the Autumn Budget
The Autumn Budget included new legislation surrounding R&D tax relief, and it’s important that SMEs have an awareness of how this will affect their claim.
R&D qualifying expenditure has now expanded to support modern research methods as costs such as data and cloud computing can now be included within claims. This is a welcome announcement by the government as it demonstrates a move to modernise the legislation.
However, rules are being chased to focus purely on innovation using UK resources, as such if you are outsourcing your R&D to an offshore entity there are now restrictions on these costs.
As we expected, the budget confirmed that there would be a cap on PAYE/NIC, which came into force on 1 April 2021. This means that the amount of payable tax credit is capped to £20,000 plus 300% of the company’s total PAYE and NIC liability for the period. The cap is likely to affect small, loss-making start-ups whose costs are primarily subcontractor costs.
A number of companies were able to benefit from government support such as Furlough grants, CBILS and BBLS – these grants cannot be included within claims as it’s deemed that the grants were to be used for the day to day running of the business.
Contact us at Fusion Accountancy and find out if you are eligible to claim R&D tax.