Understanding R&D with Purple Lime
Research and Development, commonly known as R&D, refers to innovative activities of various sizes carried out by companies to develop new products or improve existing ones to advance in their field. The Government is keen to support British innovation and started the R&D tax incentive to encourage companies to take the risk and invest in advancing.
A whole array of innovation activity is covered and application for an R&D tax claim is worth doing. Once the R&D tax return is accepted, the company can either reduce their tax bill or claim cash credits.
The R&D payment is usually paid by HMRC within 28 days of your claim being submitted. As it is a common type of operating expense, a company may deduct the R&D expenses on its tax return. The credits from your tax return are also seen as non-taxable income and are either shown as corporation tax reductions or as credit in your income statement.
What do you claim for?
You can claim for R&D tax credits in a multitude of areas, whatever industry you operate in, there will be room for innovation and therefore credits to be earned.
It’s useful to know that your company can claim for the costs directly attributed to the qualifying of your R&D claim. These include materials, water, fuel and power that may have been used in the process and even staff costs. R&D can be capitalized by the business classifying the activity going towards the claim as an asset rather than an expense if the project is viable.
How is R&D calculated?
The process for claiming involves identifying the R&D related expenditure that includes:
- Staff /Subcontractor costs
- Externally provided workers
- Software costs
- Apportionment of overheads where applicable
The costs identified will form part of the appropriate adjustments on one of the forms that will be uplifted depending on which scheme the company is applying for.
Here are some initial questions you may want to ask yourself when applying for R&D tax credits:
- Have your efforts helped advance your field?
- Did you take a risk to endeavour?
- Did you overcome any uncertainty?
- Which size band of R&D relief does your company fit into?
Answering these questions will help you get a clearer picture on your position when submitting an R&D claim and can help strengthen your case.
We understand that making it sound easy doesn’t make it an easy process. We encourage you to talk to your accountants and find out if you qualify, and if you don’t what you need to aim for next year. At Purple Lime, we pride ourselves on knowing our clients’ businesses inside out and being able to assess areas where R&D credits may be successful.
If you aren’t sure where to start or if you simply want a second opinion, please get in touch by emailing:email@example.com or calling on 01249 691360.