Many SME companies aren’t aware of the vast array of offerings that is available to them, to help them grow their business. One of these options is the research and development (R&D) SME tax credit scheme.
What is R&D tax relief?
Many small and medium-sized businesses use tax relief to relieve their tax liabilities. The UK government has been offering a few options for corporation tax relief. Companies that are carrying out research and development can, in some cases, be eligible for R&D tax relief.
Tax Relief and Tax Credits?
Although many people will use the terms R&D tax relief, R&D tax incentives, and R&D tax credits interchangeably – they are different. While tax relief is reducing the overall liabilities of a company, R&D tax credits can give even a loss-making company a chance to claim a cash credit.
Do You Qualify for R and D Tax Credits?
The criteria are pretty straight forward:
- You must have gross assets of no more than €86 million; or
- A turnover of no more than €100 million in an accounting period
When it comes to the amount of staff you have, if you have less than 500 staff but have a higher turnover and gross assets, you would be classed as a large company when it comes to R&D tax rates.
Assess Yourself Against the Criteria
You will need to look into your headcount, your turn over and your balance sheet gross assets.
You will use your annual turnover figure to see if you meet the SME scheme thresholds in this case. For the balance sheet total, you should look at the gross assets in your published annual accounts. Although, if you feel you get judged unfairly here, HMRC may go in your favour on occasion.
If you are part of a larger group of businesses, then you will be classed as a connected enterprise in most cases. Any connection like this is relevant to an SME R&D tax credit claim. So consider if you are linked to any more substantial companies, as this will impact if you are indeed an SME.
If any other enterprises hold between 25-50% of the capital and voting rights for your company; then a portion of their headcount, turnover and balance will be aggregated into yours.
For linked enterprises, this takes account if you own more than 50% of the voting rights, having the power to change a large portion of the senior team, and/or having a dominant influence over the company.
In this case, the total headcount, turnover, and balance sheet assets will be aggregated before assessing if the SME threshold is met.
Which Scheme Meets My SME Needs?
With all of the factors above taken into consideration, and the information and guidance from Veritas Noble, here are two schemes that may meet your needs:
- RDEC. This is the research and development expenditure credit, which is worth 11p on every £ spent – and is for large companies.
- The SME R&D tax credit scheme is up to 33p on every £ spent on R&D.
What Counts as 500 Staff?
To calculate your staff levels, you will look at everyone that you consider an employee on your payroll. This will include the directors. However, if you have seasonal workers or part-time staff, you can convert their working hours into units.
Any subcontractors will not be counted, but you need to include secondees and any deemed employees if they are relevant. Here are some exclusions:
- Maternity and Paternity leave
- Apprenticeship contracts and apprentices
- Vocational training for students
What Comes Under Qualified R & D Expenditure?
To get your R&D tax credits, you should be undertaking R&D projects that are considered as ‘qualifying R&D expenditure’. This is either resolving scientific or technological uncertainty or contributing to advancement in science or technology. Here is a selection of the revenue expenditure that may be included as qualifying costs in your R&D claim:
- Consumables – Anything that consumed and/or transformed into your R&D processes.
- Payments to the subjects of clinical trials – this is for the pharmaceutical industry mainly.
- EPWs (externally provided workers) – These EPWs will be provided by a staff provider, and must work under the supervision of your company in carrying out the R&D activities.
- Staffing Costs – employer NI and pension contributions, specific business expenses and gross salaries
- Subcontracted R&D – this will differ between the RDEC and the SME R&D schemes and should be discussed with a professional at Veritas Noble for clarity.
SME R&D tax credits can be an area where your small or medium-sized enterprise are missing out on real cash to grow your company. Veritas Noble are experts in maximising your R and D tax credits claim. This allows you to be the best business you can.