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Claiming R&D tax reliefs

Despite the year on year growth in companies claiming Research and Development (R&D) tax relief across the UK, a very small percentage of Welsh SMEs are applying to recover expenditure for innovative projects.

If you are an SME and have developed an innovative product, service or an advance in your field that has overcome an uncertainty, you might be eligible for thousands of pounds in tax relief – and you can even claim on unsuccessful projects!

Projects that count as R&D

The work that qualifies for R&D relief must be part of a specific project that aims to make an advance in science and technology, and is relevant to your company’s trade – either an existing one, or one that you intend to start following the results of the research and development.

To get R&D relief, you need to explain how a project:

  • looked for an advance in science and technology
  • had to overcome uncertainty
  • tried to overcome this uncertainty
  • could not be easily worked out by a professional in the field

These projects may include research or development of a new process, product or service, or improving on an existing one.

To find our more about whether your project would qualify, please visit: https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief.

Types of R&D relief

There are different types of R&D relief depending on your company size and whether the project has been subcontracted to you.

R&D tax relief for SMEs

You can claim SME R&D relief if you have:

  • less than 500 staff
  • a turnover of under €100m or a balance sheet total of under €86m

You may need to include linked companies and partnerships when you work out if you’re an SME.

SME R&D relief would allow you to deduct an extra 130% of your qualifying costs from your yearly profit, as well as the normal 100% deduction, making it a total of 230% deduction. You can also claim a tax credit if the company is loss-making, worth up to 14.5% of the surrenderable loss.

SMEs who are making their first R&D claim can qualify for Advance Assurance. If this is granted, R&D claims in the first 3 accounting periods will be accepted if they are in line with what was discussed and agreed.

R&D tax relief for large companies

If your company has external investors, this can affect your SME status. You cannot claim SME R&D relief if the project is already getting notifiable state aid or you’ve been subcontracted by another company – but you may be able to claim the R&D Expenditure Credit (RDEC) (R&D relief for large companies).

You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to.

For more information on qualifying costs and how to make a claim, please visit https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-small-and-medium-sized-enterprises.

To get further advice on eligibility criteria and how to claim your R&D tax relief, get in touch with your accountant or seek the support of an R&D tax credits specialist.

Blog by Business Wales

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