Research and Development (R&D) tax credits were introduced for small and medium sized enterprises (SMEs) in 2000 and for large companies in 2002. R&D credits are a Corporation Tax relief that were introduced to encourage innovation and enterprise within the UK economy.
There is a common misconception that R&D tax credits are only available for very specific scientific type research. Whilst there is some truth in this assumption, the availability of R&D tax credits is far wider than many think. R&D tax relief can be used by companies that are developing new or improved systems, processes, services or products in the areas of technology or science.
The R&D project in question must relate to the company’s trade and can be used by an existing company or by new start-ups. Small and medium-sized enterprises can claim R&D tax credits of 230% for expenditure incurred on or after 1 April 2015. There are different rules for large companies. Recent figures published by HMRC have suggested that some 15,000 SME businesses claim over £800m in credits each year and there are thought to be many more companies that could qualify. Interestingly, R&D credits can be used by a company in tandem with the SEIS. Whilst the R&D tax credits scheme and the SEIS both offer generous tax advantages this can be even more striking when the schemes are used together. For example, a start-up looking to establish itself in the hi-tech arena could secure SEIS funding and then use this money to create a new hi-tech platform that would qualify for R&D tax credits. The R&D work could allow for a 130% uplift in qualifying spend and create a tax refund in the new loss-making company. Claims for R&D tax credits are made on the company’s UK Corporation Tax return. Even better, once the SEIS funds have been used, the start-up could go on to raise additional finance using the EIS and continue with its R&D activity and corresponding tax credits.
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