How to Save Money on R&D
Innovation can be expensive, especially for small businesses and start-ups launching their first products or expanding into new markets. Research and development (R&D) is a crucial step in developing a product and eventually selling it to consumers, but many companies are set back by the costs involved. The Office for National Statistics found that the business sector experienced the most growth in R&D spending, with an increase of 5% in 2015 from £1.1 billion to £20.9 billion.
The costs involved in R&D can be huge and cover a range of expenses and overheads including software, materials, staff wages, incentives for volunteers and capital expenditure. However, the good news is that many R&D projects and innovations undertaken by businesses are eligible for tax relief.
Research and Development Tax Relief
The R&D tax relief scheme is a corporation tax credit, and can result in a reduction in a company’s tax bill. HMRC offers this type of tax relief to businesses which are conducting a research and development project which seeks to achieve an advance in science of technology. Therefore, if you think your new product will directly contribute to a breakthrough in technology or science and disperse scientific or technological uncertainty, you could qualify for this relief.
Don’t let the ‘science’ bit put you off – this term can relate to business innovation using creative design or data science, or most ways to make improvements to services or products. The main thing you need to prove is that the research and development project involves an element of business risk or uncertainty, and in most cases the outcome is not predictable.
There are billions to be claimed by SMEs, but many of them don’t know the tax credits exist or are put off by the long form-filling process. Nonetheless, the average pay-out to UK businesses is £50,000 and this can go a long way to improve the R&D project and allow companies to keep more of their revenue which is generated by the product.
The bottom line is, thousands of businesses could be eligible to save a big chunk of their annual corporation tax bill, but the cash isn’t being claimed. If you have a research and development department or have invested in R&D projects in order to innovate, then you could claim up to 33% of what you’ve invested. If you need help then many solicitors and accountants have specialist teams to deal with R&D claims.
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