Kingston Smith

Business Doctor: Tax credits cut the bill for research


CC writes: I have been developing some technology in my company and have heard about research and development (R&D) tax credits. How do I check if I will qualify and what is the claim process?

R&D tax relief can be useful as it can provide a qualifying small or medium-sized company with a reduction in taxable profits or a cash refund, writes Jon Dawson, partner at Kingston Smith LLP. A small company can claim enhanced corporation tax relief of 230% on qualifying R&D costs or, if loss making, obtain a 14.5% cash payment. The best choice will depend on the profitability of your company and its cashflow requirements.

To claim R&D relief, you must demonstrate four key aspects set out by HM Revenue & Customs: scientific or technological advancement; there was some uncertainty over success; how you overcame the uncertainty; and that the knowledge being sought is not readily deducible by a competent professional.

You can apply for assurance from HMRC that you will qualify for R&D relief if your company meets certain conditions. These include: having not previously claimed R&D relief; turnover less than £2m; and less than 50 employees. This can be especially advantageous if you are seeking investment as it can provide some comfort to investors.

You can apply for advanced assurance through form CT R&D (AA), giving details about the company and technical information on your R&D.

If approved, HMRC will not make any further inquiries into the first three accounting periods in which you claim R&D relief, reducing your administrative burden. You do have to be careful that any R&D activities are as stated in your application. If you start to work on other R&D, it may not be covered.