R&D tax credits were created by HM Revenue & Customs in 2000 to encourage greater investment in innovation. Since these tax credits have been introduced the Government has continued to make them more generous. Even in March this year, the Chancellor announced that there will be more financial help for loss making SMEs and start-ups though R&D tax relief. Consequently, the rate of the cash credit payable to SMEs conducting qualifying R&D activities increased from 11% to 14.5%, as of April 2014, based upon qualifying expenditure.
To claim the R&D tax relief, businesses must carry out projects that aim to achieve an increase in the overall knowledge or capability in a particular field of science or technology. Businesses must also be able to prove that the outcome of a project is uncertain from the start; they cannot receive tax relief for projects that already have a known outcome. The project must also be related to the company’s trade.
Therefore, the R&D tax credit can apply to many business sectors that are undertaking projects to develop innovative products or processes. It does not solely apply to the manufacturing or technology sectors, which is the most common perception surrounding these credits.
The tax relief is here to encourage innovation by large companies, SMEs and start-ups, and despite the huge uptake in claims, being over 13,000 claims in 2012/13, it is still thought that a lot of companies are missing out. If you are unsure whether your company potentially qualifies for R&D or if you would like further information please get in touch.