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How the research & development tax relief will grow your business

With a vision for “the world’s most innovative economy”, the government is investing £725m in research and development (R&D). R&D is work that advances overall knowledge or capability in a field of science or technology. R&D can also be a project or activity that helps resolve scientific or technological uncertainties.

For SMEs, R&D is the foundation for technological advancements in artificial intelligence (AI) and a driver for business growth.

But, how exactly will AI help your business and how do the tax reliefs work?

How AI R&D will support your business growth

Historically, SMEs tend to hold back when it comes introducing new technologies. This sort of innovation is usually dominated by new entrants, or larger companies that have the scale and resource to fully take advantage of emerging opportunities.

With investment in R&D, more SMEs can start reaping the benefits of AI:

  • AI enables businesses to make better, data-driven decisions.
  • AI allows businesses to anticipate customer behaviour.
  • AI allows businesses deepen relationships with customers through greater personalisation.

How to make the most out of AI

According to the Financial Times, there are three things SMEs need to do to make the most of AI:

  1. Engage your workforce, don’t replace it: Train people and give them the experiences and skills that will complement the capabilities that AI will bring.
  2. Use employees’ skills and experience to steer innovation: Find the people who know the shortcuts to getting things done and enable computers to learn from it.
  3. Experiment with a ‘think big, act small’ approach: Identify tasks in the business that demand skill and experience but are repetitive and data sensitive.

What is the eligibility criteria for R&D tax relief?

Business eligibility criteria:

There are only two conditions to meet, to qualify for R&D tax relief.

  • Fewer than 500 staff
  • A turnover of under €100m or a balance sheet total under €86m

R&D eligibility criteria:

The types of R&D eligible for a tax relief depend on certain criteria. The R&D has to involve:

  • Creation of new processes, products or services
  • Improvements to processes, products or services
  • Use of science and technology to duplicate existing processes, products and services in a new way. But, pure product development in itself does not qualify.

How to claim R&D tax relief

You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to.

Making a tax relief or credit claim can be a robust process that requires a bit of time to get right. To make this as hassle-free as possible, HMRC have created simple steps. There are two stages to making a claim:

  1. Workout how much tax relief or credit you should receive
  2. Complete a company tax return
For the step by step process, visit HMRC’s website.