Many small and medium-sized enterprises that are engaged in research and development activity are entitled to claim for R&D tax credits to offset some of the costs involved with innovating. The SME scheme, introduced in April 2000, aims to encourage smaller businesses to actively seek advancements of a scientific or technological nature in their field.
But how do you determine which projects are eligible and what costs you can claim back for? Here is some basic guidance on R&D tax relief for small businesses.
The SME scheme
Companies meeting the following criteria can apply for R&D tax credits under the SME scheme, regardless of the industry in which they’re based.
- They have under 500 employees
- Their annual turnover is less than €100 million or their balance sheet totals no more than €86 million
- They pay UK corporation tax
Meeting the criteria means that organisations may claim 230% on revenue costs associated with qualifying projects.
Qualifying projects
Qualifying activities come in all shapes and sizes, but must ultimately seek to make an advancement in science or technology, or resolve a scientific or technological uncertainty in your industry. This could be anything from development of app technology beyond its previous limits to production of a prototype that is more energy efficient than existing products in the field.
Speaking to your technical staff, engineers or developers will help you to gauge whether the activity you are undertaking is eligible for R&D tax relief. It’s important to remember, however, that financial jargon can be perplexing for others in different fields, so asking questions about the level of risk undertaken to achieve an advancement, the uniqueness of the project within the sector, and the ability of other highly trained professionals to find a solution previously are a good way to start.
Qualifying costs comprise revenue-based expenditure on employees, materials, utilities and some subcontractor costs.
Project status
R&D tax relief can be claimed on ongoing, abandoned and even unsuccessful projects, as long as the business can prove that it sought to make an advancement in a scientific or technological field. Tax credits can be claimed on any eligible expenses up until the project was halted, meaning that an unsuccessful endeavor needn’t leave you out of pocket.
Projects being carried out overseas can also qualify for R&D tax relief, provided your company is paying UK corporation tax. The claims process, however, is more complex than for UK-based projects, so it’s advisable to speak to an R&D tax specialist for help with the claim.
Loss-making businesses
Businesses that are loss-making can still claim for R&D relief – the only difference is that the payment is made as a cash sum, while for profitable businesses it’s made in the form of a corporation tax rebate. The SME scheme was designed to offer financial aid to any organisation seeking to make progressions in science and technology, so you can claim regardless of whether your business is profitable.
