FOUR in five businesses that could be claiming R&D Tax Credits are not, according to Northampton-based Cottons Chartered Accountants.
This could be attributed to a lack of understanding among the small business community of which businesses are actually eligible for the relief.
Contrary to popular belief the HMRC Research and Development Tax Credit scheme, one of the most lucrative tax relief systems available to small business and in place to encourage innovation here in the UK, is not just for technology-driven enterprises. In fact, relief is open to any business investing in innovation regardless of industry.
From catering to construction, small and large business alike can apply for and receive a credit if their relative project is eligible.
In short, Research and Development Tax Credits work by allowing you to increase the amount of money you record as spent on your project by a certain percentage, thus reducing your profit (in some cases increasing a loss if your company has not made any profit). This action will reduce the amount of tax a business pays hence the relief.
The amount subject to increase (the amount of money you will record as higher) is referred to as qualifying expenditure. Currently, the rate at which qualifying expenditure is enhanced for small businesses is 230 per cent.
Of course, the qualifying expenditure is only recorded as such when tax computations are being made. The amount is recorded as so that it does not affect your company’s performance records (balance sheet) e.g. the qualifying expenditure is only enhanced by the 230 per cent when you come to do the company tax return to give an enhanced tax-deductible cost.
The result, as mentioned, will reduce the company corporation tax bill if the company is profitable, however, if the company has made a loss in that year it can elect to receive a cash credit. In that case HMRC pays cash into your account at a current rate of 14.5 per cent.
