The United States government is continuously looking for ways to incentivize innovation and improvements in processes within companies to promote growth. For this reason, the US government has provided the R&D Tax Credit system. This tax credit mechanism is designed to incentivize companies to invest in research and development and to develop new innovations or to improve existing processes.
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What is R&D Tax Credit?
The R&D Tax Credit is provided to companies that invest in the research and development of new products, innovations or processes and is even provided for the improvement of existing products, services or processes within an organization. This tax credit can be claimed through a cash payment or a Corporation Tax deduction. The fact that the R&D Tax Credit includes the development of new products, as well as improvements to existing products and processes, gives this tax incentive a massive scope. The additional benefit of the R&D Tax Credit is that, if you’re making a claim for the first time you can claim tax relief of the R&D for the previous two completed accounting periods.
Who is Eligible?
The R&D Tax Credit system is designed to reward almost any attempt at developing new products or processes or improving existing products or processes. This means that if your organization undertakes R&D on a new product or employs a new system to improve existing products or processes it will qualify for an R&D Tax Credit, this is regardless of whether the R&D resulted in the successful deployment of these new or improved products or processes. The main idea behind this incentive is to encourage organizations to bring about new levels of innovation, quality and efficiency.
What R&D Expenses can be claimed?
Almost all expenses related to R&D or process improvements qualify for the R&D Tax Credit. More specifically the following expenses can be claimed under this scheme.
Salaries paid to the researchers and developers
Material costs and logistic expenses related to the R&D of new products, including prototypes.
Third-party contract costs. In case, a third-party organization was contracted to conduct R&D for the development of a new product or process.
The expenses incurred to utilize cloud-based services such as CMMS, Online Accounting Software, etc., to improve existing processes or conduct experiments on existing processes and products.
What are considered R&D activities?
The following business activities will qualify for the R&D Tax Credit.
Attempts to uncover new information or eliminate technical uncertainty, thereby, improving a product or process.
Experimentation seeking new developments or improvements.
The activity should be technological and should involve hard sciences.
The activity should have a well-defined purpose. It should either help create or improve existing products or processes.
How a CMMS Software can Help Earn you an R&D Tax Credit
A Computerized Maintenance Management System (CMMS) is a software application that can help your company bring about new levels of efficiency and improvement to your organization. These software applications come packed with features that can drastically reduce the downtime of systems within your organization. Let’s take a look at some of the features of a CMMS and how it can earn you an R&D Tax Credit.
Once you include asset data into a CMMS it automatically becomes part of the CMMS database. This database allows technicians and the maintenance team to draw information to improve the maintenance of assets within the organization, thereby, reducing downtime of assets and improving overall processes. The drawing of information from the CMMS database to improve processes can be considered R&D, thereby, qualifying expenses incurred for an R&D Tax Credit.
Work Order Management
A robust CMMS software allows you to automatically generate work orders for maintenance and/or repair of equipment within an organization. The Work Order Management Software will also allow you to create customized workflows to standardize all maintenance and repair activities, creating custom workflows to improve processes or create new products qualifies as R&D.
A CMMS can help you manage the inventory of your organization efficiently. The system will send out order requests for new parts or replacements automatically and you can customize your orders and their frequency as well. This automation of order placement and inventory management removes a considerable amount of workload from your accounts and maintenance teams, thereby, improving processes and reducing overheads.
Using historical data from previous maintenance schedules and repairs the CMMS can help you predict breakdowns and when a specific asset will require maintenance. Predictive maintenance drastically reduces the downtime of machinery and other assets, improving processes and the quality of products being manufactured. Predictive maintenance required R&D and can, therefore, qualify for an R&D tax credit.
The CMMS can provide you useful insights from almost all corners of your organization to reduce overhead, improve products, and streamline workflows within your organization. These software applications are great tools for predictive analytics that bring new levels of efficiencies to the organization. The use of this data to improve the quality of processes and products that a company offers can be considered R&D and can, therefore, qualify for R&D Tax Credits.