R&D Tax Credits and Capital Allowances

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Research and Development Tax relief

is for businesses that invest in innovation, which is more businesses than many realise. 

Is your business innovating by developing new systems, processes materials, devices or any changes to the way a business works. Even if your venture is unsuccessful, you can still claim. 

In order to get R&D relief, a business must explain how a project:

• Looked for an advance in science and technology
• Had to overcome uncertainty
• Tried to overcome this uncertainty 
• Could not be easily worked out by a professional in the field

You can still claim if you are developing an existing product or service, it’s not just new ideas. But, they must be for the advancement of the whole field / sector, not just for your business. 

 

Why claim research and development tax? 

You can make an R&D claim to receive either cash payment or reduction in your corporation tax. Based on the size of a company, there are different types of relief:

• Small and medium- a business with under 500 staff and a turnover under 100 million euros or a balance sheet total under 86 million euros.

• This allows a business to deduct an extra 130% on top of their normal 100% deduction on qualifying costs from their early profits 
• If the company is making a loss, a business can claim a tax credit up to 14.5% of the surrenderable loss 

• Large companies - over this threshold, large companies can claim a research and development credit 
• This is with 13% of a business’ R&D expenditure 

We can help determine whether your business is eligible and make a claim for you. If you have any queries, contact us.

Capital allowances

are an expenditure on assets which a business can claim against its taxable profit. Eligible categories include research & development, equipment, and at least some vehicles for company use.

The Government has capital allowances tax relief because some assets depreciate but corporation tax stays the same so they have special rules to relieve tax on such assets. 

The largest capital allowance is the Annual Investment Allowance (AIA) which allows businesses to deduct up to £1,000,000 (depending on business type and size) of expenditure on their assets each year. Most plant and machinery can be claimed on this and the tax deduction happens in the same year the asset is acquired. 

First Year Allowance (FYA) is another commonly used capital allowance, where the deduction is only available in the year of purchase. This can be collected on energy or water efficient equipment.

 

 

Why claim Capital Allowances?

• Tax reliefs are beneficial as an eligible business will pay less tax at year- end if used correctly. 
• Using the Capital Allowances strategically, a business could save more, for example instead of paying for two assets at once that come above the AIA threshold for the year, delaying expenditure in order to utilise the next year’s tax reliefs. 
• It could transition your business into “green technology” as first year allowance gives 100% relief on such special technology 

 

Many businesses have not claimed this tax relief- HMRC statistics says there are 100,000s of UK businesses yet utilize these reliefs. We can help to see if you are eligible and make the claims for you. If you are interested, contact us.