It’s fair to say that the last few months haven’t exactly been great for business, and most of our finances could do with a bit of a boost! It’s possible that individuals and businesses are missing out on claiming tax benefits for specialist tax areas, just because they are little known or not well understood. In this first of a series of blogs, we look at some of the different types of specialist tax schemes that your business might be eligible for.
Research & Development (R&D and RDEC)
Companies carrying out qualifying R&D activities can claim significant corporation tax relief on eligible expenditure. Eligible companies can benefit from a tax credit if they are loss-making or a corporation tax reduction if they are profitable. To be eligible you need to have less than 500 staff, and a turnover of under €100m or a balance sheet total under €86m.
R&D relief is designed to support companies working on innovative projects in science and technology which seek to make an overall advance in one of these areas (not just an advance for your own business), even if these projects prove unsuccessful! The project must relate to the company’s trade, and may research or develop a new process, product or service, or improve on an existing one. In order to make a successful application for R&D relief you will need to show how it:
- 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
SME R&D relief allows companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction, or claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects. It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company. The RDEC is currently worth 13% of your qualifying R&D expenditure.
Patent Box
The Patent Box is designed to encourage companies to keep and commercialise intellectual property in the UK. It allows companies to apply a lower rate of Corporation Tax to profits earned from its patented inventions. The rate currently stands at 10%.
In order to qualify, your company must have undertaken qualifiying development for an invention for which a patent has been granted by the UK Intellectual Property Office, the European Patent Office, or certain individual Eurpoean countries. This means that as well as owning or exclusively licencing in the patent you must have made a significant contribution to the creation or development of the patented invention or a product which incorporates the patented invention.
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