17 Jul What Are R&D Tax Credits?
In the UK, businesses are taxed fairly heavily. That is especially true when you compare the rates to those of other countries. The UK has a very vibrant economy with many capable employees and interested clients; therefore, it is worthwhile for a company to invest in the UK even though the taxes are fairly substantial. As the owner or manager of a business, it is your responsibility to make sure you are making the company as much money as possible. That means maximising profits and minimising expenses. Expenses are things like overhead and operating costs, but also include the tax burden. If you can minimise the tax burden, you can increase the profitability of the company. That’s where R&D credits come in.
The R&D Credits
R&D is an abbreviation meaning “research and development.” Research and development is the area of your business devoted to growing your business by advancing new technology, new products, and new ideas. The problem arises when research and development takes time. For example, if you are selling trainers at your business, you might want to devote a considerable amount of research and development to making a lighter weight trainer. Making a lighter trainer involves studying why trainers weigh as much as they do now, researching alternative materials, buying or developing those alternative materials, and then developing them into a functional shoe. That is going to take a lot of time and a lot of money.
That time and money might yield great profits in the future, but at the moment, they are just expenses. You’ll simply be losing money with the hope of making profits in the future. In recognition of the risks of research and development, the UK government designed R&D tax credits. If you have invested in new business practices this year, you could be eligible for R&D tax credits in 2017.
The tax credit program was first developed in the year 2000 to help spur economic growth. The government found that too many businesses were losing money because they were investing heavily in research, or they were foregoing research in order to save money. The government wanted to encourage research, development, and technological innovation; therefore, they created a program to give people tax credits.
The program is fairly complex, which is why you should hire a tax preparer to help you determine what credits you are eligible for. There are different areas of the program designed for engineering, science, and so on. To figure out which credits are right for your business can be incredibly difficult. Hiring a professional to assist you is your best option. This will reduce the amount of work you have to do and increase the chances of you getting the best possible tax credit.
Hiring a professional just makes sense; you hire professionals to do just about every other aspect of work at your business. To continue the example of trainers, if you were selling trainers, you would hire professionals for the research and development. Similarly, you should hire professionals to negotiate your tax bill.