In the constantly evolving landscape of the IT industry, research and development (R&D) plays a pivotal role.
It fosters innovation, fuels growth, and enables UK-based IT companies to stay competitive on a global stage.
However, what many businesses might not be aware of are the generous R&D tax relief schemes provided by the UK government.
R&D schemes are specially designed to incentivise, and reward companies for their efforts, and IT businesses are particularly well-placed to benefit from them.
What is R&D tax relief?
Simply put, R&D tax relief allows companies to claim back a significant portion of their R&D expenditure as a reduction in their corporation tax, or even as a cash credit.
The relief covers various costs such as staff salaries, subcontractor costs, and even software purchases relevant to the R&D project.
There are two schemes to consider:
- the SME R&D scheme
- research and development expenditure credit (RDEC) scheme for larger companies
Why IT businesses are ideally positioned
The IT sector is inherently rooted in innovation and development.
Whether you’re pioneering new software solutions, developing algorithms, or optimising hardware capabilities, there’s a high likelihood that your work qualifies for R&D tax relief.
Furthermore, the range of eligible projects is extensive and can include everything from creating new products, processes, or services to modifying existing ones.
Making a successful claim: top tips
Here are some tips to give your claim the best chance of succeeding:
1: Keep detailed records
It’s crucial to maintain meticulous records of your R&D activities and expenditures.
Documentation could include project plans, emails discussing research aspects, and even records of failed experiments. The more detailed your records, the easier it will be to substantiate your claim.
2: Identify the ‘advance in science or technology’
A successful claim hinges on demonstrating how your project sought to achieve an ‘advance in science or technology.’
The advance doesn’t necessarily have to be groundbreaking; even small, incremental improvements can qualify.
3: Consult experts
Navigating the complexities of R&D tax relief can be challenging. Consulting a tax advisor with expertise in R&D claims can provide valuable insights and improve your chances of a successful claim.
They can help you identify qualifying costs and guide you through the intricacies of the claim process.
4: Keep track of time
Timing is essential when making a claim, as the deadlines are strict.
Generally, you have two years from the end of the accounting period in which the R&D expenditure was incurred to submit your claim. Missing this deadline could mean missing out on valuable tax relief.
5: Consider subcontracting costs
If your business has outsourced any R&D activities to subcontractors, these costs might qualify for relief.
However, the rules around this are complex, and it’s advisable to consult an expert to understand how this applies to your situation.
A significant opportunity
R&D tax relief represents a significant opportunity for IT businesses to offset the costs of innovation and development.
If you’re in the IT industry and aren’t already taking advantage of this scheme, now is the time to explore your options and give your claim the best chance of success.
By keeping detailed records, understanding what constitutes an ‘advance’, and seeking expert advice, you’re well on your way to unlocking the financial benefits that your innovative efforts deserve.
If you want to learn more about how your IT business can benefit from R&D, get in touch with us today.