WHAT DO YOU MEAN BY RESEARCH AND ASSESSMENT TAX CREDIT (RAT)?
Research and Development Tax Credits, sometimes called Research and Assessment Tax Credit (RAT), are a UK basic tax credit designed to support businesses to invest in research and development. Business owners may claim or reduce their basic tax bill by claiming cash awards as a percentage of their R&D investment. This cash payment is referred to as an allowance. Claiming allowances can be done for research and development expenses, which include the costs of technology used for the operation of the business, and/or equipment bought for the growth of the business. For r and d claim it is important that you meet all the eligibility requirements.
HOW MANY WAYS TO QUALIFY FOR TAX CREDITS?
There are two ways to qualify for tax credits. If you are a large company that is undertaking research and development activities for a business in the United Kingdom, and if your activities are likely to result in new products, new processes, or innovative ideas that will improve the competitiveness of your business, you may be eligible to claim up to the total amount of R&D paid for the year. Or, if you are a qualified unincorporated trader, you may be eligible to claim up to double the amount of R&D you spend on any one project. Claiming tax credits under either category is limited to the amount that can be claimed.
Claiming R&D Allowances A company can claim tax credits for qualifying expenses related to technological uncertainty. In order to qualify for the tax relief, the company must demonstrate two key elements. First, it must be clear that the company is evaluating new products, processes, or strategies in order to determine how technological uncertainty influences its future competitive position. Second, in order to establish the baseline measurement of future eligible costs, the company must provide a projection of how existing assets and processes will act in the absence of the relevant projects.
For most businesses, it is not necessary to prove t
he basis of a particular argument in order to claim tax credits under both the R&D Allowance and the Corporation Tax Credit. If your company has an established accounting system, you may be able to use the Allowance in calculating the tax credits. The Corporation Tax Credit is particularly useful for companies with significant non-operational expenses such as rent, utilities, payroll, and purchasing items such as office furniture. However, if your corporation is a small business that does not have a history of profitability, it may not be possible to take advantage of the R&D Allowance.
When you file your first claim under the Research and Development Allowance, you can choose between claiming a lump sum or a series of quarters. The second year of claim allows you to apply for an additional tax credit. With a claim made in the first year, you receive an annual refund and are not allowed to claim the maximum amount of tax relief in the second year.
RULES FOR HOW MUCH YOU CAN CLAIM?
There are a number of rules that govern how much you can claim for eligible costs. The eligible costs are those expenses that are related to research and development activities. Some of these eligible costs can include travel, diagnostic equipment, computer systems, and some manufactured goods, as long as you can show that they were necessary to the success of your business. These eligible costs cannot include any of the following expenses: travel expenses to outside countries, transportation, entertainment, and housing.
After you complete your first R and D Year, you may start to claim for quarterly or annual eligible expenses again. This second claim is considered a new claim for tax credits and is subject to the general rules that apply to the first claim. After you apply the appropriate adjustments to your first claim, you can then make a claim for the fourth and subsequent years. However, you must not make a new claim for the first year that you qualify for tax credits on eligible technological uncertainty expenses.
There are specific qualifications that you must meet and there are detailed requirements that you must comply with in order to meet these qualification requirements.
CONCLUSION
If you do not meet the technical and qualification requirements for the claim, you may be unable to obtain the tax credit claim. There are many resources online and through your local government that can help you determine if you meet the general technical and qualification requirements for claiming your tax return on the R and D property.
