What’s it all about?
R&D Tax Relief is there to encourage investment in innovation and is available to companies from almost any industry who are making scientific and technological advances. Companies who meet the criteria are able to reduce their corporation tax liability by an amount equal to a percentage of the company’s eligible R&D expenditure. The projects do not necessarily have to be successful but must must aim to create an advancement in its own field (not just an advancement within the business itself.) The innovation must directly relate to the company’s trade and can include improvements to products, services, and support functions that have not already been achieved by other people or companies.
R&D Tax relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work in design and engineering that involves overcoming difficult technological problems. This can include creating new processes, products or services and making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. But pure product development in itself does not qualify. Some examples of qualifying activities include software development, engineering design, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences. There are case studies at the end of this guide for these industries.
For SME’s, once they have the total of allowable expenses then they simply include 230% of the allowable value on their tax return. (By deducting an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction)
Which means for every £10,000 the SME business spends on qualifying R&D expenditure, it will have £23,000 deducted against its taxable profits – i.e. an uplift of £13,000 or 130%. This will then incur extra tax relief of £2,470 (19%) on top of the £1,900 tax relief the business would already have on the original expense; a total tax saving of 43.70% of the original expense!
If the company is loss making they can claim a tax credit worth up to 14.5% of the surrenderable loss – the loss that can be converted this way is the lower of the actual loss on the return or the enhanced R&D relief, i.e. the 230 %.
Don’t worry if you think you have missed out as it is possible to retrospectively claim with HMRC 2 years from the end of your accounting period. You can file an amended company tax return (CT600) even if you have already filed for the time period in which the R&D took place.
We can check whether any of the projects your business is developing meet the R&D Tax relief criteria and help you with the process of claiming.
Please get in touch if you think you might be eligible.