If your business is involved in research and development aimed at an advance in your field (whether that be science or technology) then you may be eligible for Corporation Tax relief on your project.
Here we look at the research and development tax credits which may be available to your business and how to check if you are eligible. We also look at some tips for protecting your work and intellectual property.
What counts as Research and Development when it comes to tax credits?
Information provided by the UK government states that to receive tax relief your Research and Development (R&D) project must be within the fields of science or technology.
It must also relate to your company’s trade. Either an area you already work in, or one you will move to work in depending on the results of your R&D project.
Your project may research or develop a new process, product or service or improve on an existing one. Pure product development itself does not qualify.
What criteria must your R&D project meet to qualify for tax relief?
There are 4 key criteria your project will need to meet in order to be able to qualify for research and development tax credits
- You must look for an advance in science and technology
The advance which your project aims to create must be for your overall field, not just related to your business.
- You must demonstrate you had to overcome uncertainty
The definition of uncertainty when it comes to R&D projects in this context is:
‘A scientific or technological uncertainty exists when an expert on the subject cannot say if something is technologically possible or how it can be done – even after referring to all available evidence.’
When it comes to your R&D project, your company or other experts in the field cannot already know about the advance or the way you achieved it.
- You must demonstrate that you tried to overcome this uncertainty
This ultimately means that your R&D project needed research, testing and analysis to achieve it.
- You must show that your advance could not be easily worked out by a professional in the field
You must be able to explain why a professional could not work out your advance. To do so, you should be able to demonstrate how others have failed to find a solution.
You can also demonstrate that the people working on your project are professionals in that field and get them to explain the uncertainties involved.
What research and development tax credits are available?
If your project meets the criteria of research and development set by the government and HMRC, there are different types of R&D tax relief which may be available to you
Which you may be able to claim depends on
- The size of your business
- If the project has been subcontracted to your business or not
Small and medium sized enterprises (SME) R&D Relief
To claim this relief, you must demonstrate that your project meets the definition of R&D and that you meet the criteria for being classed as an SME
- less than 500 staff
- a turnover of under 100 million euros or a balance sheet total under 86 million euros
If eligible, 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
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
There are many complexities involved in determining if your project qualifies, how to claim relief and supporting your claim for research and development tax relief. A good point of reference if this is something which you think your business may be eligible for is this ‘Making R&D easier for small companies’ guide created by HMRC.
Research and Development Expenditure Credit
This can be claimed by large companies working on R&D projects as well as SMEs and large companies who have been subcontracted to do R&D work by a large company.
The Research and Development Expenditure Credit is a tax credit. From the 1 April 2020, the rate was increased to 13% of your qualifying R&D expenditure
Find out more about the Research Development Expenditure Credit, costs you can claim, how to calculate it and how to claim the tax credit.
How to protect your research and development project
If your business is involved in research and development, then it’s vital to know the importance of protecting your intellectual property.
Intellectual property can be defined as ‘intangible property that is the result of creativity, such as patents, copyrights, etc.’ As a business it is important to recognise the IP that you hold and to assess the value that the IP has for your business. Once you have done this, you can determine whether to apply for IP protection such as patents, trademarks and copyrights amongst others. These will all give you, as the owner, certain rights when it comes to your creations, inventions, and designs.
Intellectual property insurance can also prove invaluable when it comes to protecting your intellectual property rights.
Key areas in which intellectual property insurance can assist you include:
- covering legal costs associated with bringing about an intellectual property infringement claim
- covering legal costs associated with defending an intellectual property infringement claim
- covering court awards made because of the claim
- insuring historic IP registration costs
- insuring future revenue streams
- assistance with breach of agreements
At Anthony Jones we are passionate about ensuring that our customers have the right insurance cover in place to protect their business success. This extends to intellectual property insurance where we think we can and have made a real difference to many small businesses. If you have any questions about intellectual property insurance or your small business insurance needs don’t hesitate to get in touch with us – we are always happy to help. Call us on 020 8290 9080 or alternatively email us at firstname.lastname@example.org