Claim research and development tax credits

Research and development tax credits are mainly targeted at SMEs as the Government recognises the strategic importance of helping the development of fast-growing, innovative SMEs, particularly in the technology sector.

So if your company spends a lot in this area, and not just in terms of developing software or IT, then this could be a useful source of tax minimisation.

In the budget 2001, tax credits were introduced to reduce the after-tax cost of research and development for taxpaying companies by 12.5%. For companies that are not yet in taxable profit the tax credit will reduce the immediate cash cost of research and development by 24%.

The value of the credits will of course depend on how much your company actually invests in these particular areas:

• Investment in new technologies. This can include IT software development, biotechnology or engineering. Growth potential in these sectors is one of the reasons the Government increased the R&D allowances in the last budget
• Investment in new processes. This is particularly relevant in the manufacturing industry
• Investment in new procedures (particularly as regards manufacturing)

One thing which should be obvious from this small list is the emphasis on the word "new". If you want to apply for these types of credits from the Revenue you must be prepared to prove that you are investing in R&D. This will involve the production of detailed plans outlining the purpose of the research and a clear statement of the benefits that it will bring.

You must be able to demonstrate the quality of your R&D procedures and that they are feasible. For example you might have to show that you have hired the right sort of people to carry out your programme. Do not therefore think that R&D is a simple way of gaining tax advantages.

If you feel you would like to apply for R&D tax credits you should consider going to an expert - an accountant, for example. This will involve paying commission but it will save you a lot of time and help you to understand your entitlements and obligations.

An enormous number of Government incentives for business, like R&D tax credits go unclaimed because businesses are either unaware or unable to afford the time applying for them. These tax credits could free up vital growth capital for your business and support new product development, so they are definitely worth considering.