Tax credits - deadline fast approaching

The Research & Development (R&D) tax credits help companies to invest more in R&D either by reducing a company's tax bill or, for some small or medium sized companies (SMEs) not in profit, by providing a cash sum. The R&D tax credits are available to companies throughout the UK.

Many UK companies still miss out on this bonus from HM Revenue & Customs. They do not appreciate that they are performing R&D for which they can claim - or that the claiming process can be straightforward.

A basic definition of qualifying R&D is "work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology". Advances include new or improved products, processes and services. If it's obvious to a professional how to do something, doing it isn't R&D. If there is a 'non-obvious' scientific or technological problem around how to do something, then doing it is probably R&D.

All companies with qualifying spending over £10,000 a year on R&D are entitled to a deduction when calculating their taxable profits of

• 150% of qualifying expenditure for SMEs, or
• 125% of qualifying expenditure for larger companies.

These deductions will reduce the company's UK corporation tax bill accordingly.

Companies can claim R&D tax credits for their revenue expenditure on:

• employing staff directly and actively engaged in carrying out R&D,
• paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D,
• consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D), and
• power, water, fuel and computer software used directly in carrying out R&D.

Capital expenditure is not eligible for the credit, but may be covered by 100% capital allowances (Research & Development Allowances) instead.