Research and development tax
Is your business taking advantage of research and development tax relief?
If your company is liable for corporation tax, or would be if it were making a profit, you may be able to reduce your tax bill, or receive a refund from HMRC, through the Research and Development tax relief scheme.
Tax relief for qualifying expenditure on Research and Development is incredibly attractive and certainly worth exploring. The process of accessing the generous tax reliefs can, however, seem daunting.
The eligibility criteria are far from straightforward, and there is no room for error when making your claim to HMRC.
Research and development relief is available to any business, which seeks to improve any process – not only businesses employing armies of scientists in white coats!
We have managed successful claims for organisations as varied as software companies, food businesses and cosmetic dentists. We are able to advise on whether your business qualifies for the scheme, and how to maximise your claim.
Here to help
As specialist tax advisers, ETC can advise on all aspects of the research and development tax relief scheme.
We have a thorough understanding of the types of projects that qualify for research and development relief, the costs that come under the scheme, and how and when to make a claim.
With extensive experience of achieving generous tax savings for SMEs and larger businesses across varied sectors, we understand the intricacies of making a successful claim. We will manage the process on your behalf, presenting the most compelling case to optimise relief.
We can also provide advice on related areas such as tax efficient structures for your research and development operations – in the UK and overseas.
We are also able to identify and advise on all other relief schemes, including capital investment in plant and machinery (capital allowances), the Enterprise Investment Scheme (“EIS”) and Seed Enterprise Investment Scheme (“SEIS”).
You can be assured we will assess all aspects of your business and research and development project to maximise the tax savings available to your business.
Research and development tax faqs
Is my business eligible for research and development tax relief?
The R&D scheme is open to both SMEs and larger companies across all sectors.
The main requirement is that you demonstrate scientific or technological innovation and advancement.
The definition is broad in scope, and you will need to put forward a compelling case to prove your R&D project satisfies the requirement and is eligible for relief.
We have the experience to advise on project eligibility and evidencing your claim. For example, we routinely engage with business’ R&D staff to ensure we have covered all areas of cost and R&D activity within your claim.
How do I make a claim for research and development tax relief?
You make your claim for research and development tax relief within your corporation tax return. This would usually be two years after the end of the relevant accounting period. Relief is given by either reducing the amount of corporation tax payable if you are making a profit or, where you are in a loss position, by claiming a payment direct from HMRC or carrying the resulting loss forward to future accounting periods
When completing your CT return, it will be important to submit the right figures within the right section. This includes submitting additional information in support of your claim. While not mandatory, in our experience, this helps to build a compelling case.
And while you are not required to keep specific records in support of your R&D tax relief claim outside the usual CT requirement, you may be asked as part of an HMRC compliance check for your company records to support your claim. We can provide practical guidance on record keeping.
What costs come under the research and development scheme?
You can only make a claim against ‘qualifying spend’. This covers revenue expenditure only, not capital expenditure.
For capital expenditure, the R&D capital allowances scheme may apply.
Qualifying costs must be attributable directly to the specific R&D activity being claimed for. Examples could include the cost of people involved in the R&D (staff, trial volunteers) and the cost relating to software, utilities and materials used or consumed when carrying out the R&D.
We can advise specifically on which of your costs would be classed as qualifying spend.
What if my business made a loss?
Depending on your circumstances, instead of carrying forward a loss, you may opt to receive research and development tax credits in the form of cash-back from HMRC. We can provide advice based on your particular circumstances.
How much could my business save under the R&D scheme?
Savings are measured against your business’ qualifying spend. The level of saving will then depend on the size of your business.
Companies with fewer than 500 employees with either an annual turnover under €100 million or a balance sheet under €86 million are classed as SMEs.
Note this classification is specific to R&D relief, and differs to the wider HMRC definition of ‘SME’.
If in doubt, we can advise, including other factors which may affect your classification and eligibility, such as share holdings in other organisations, or if your company is in receipt of an R&D subsidy or grant.
For SMEs, the tax relief on allowable R&D costs is 230% – for every £100 of qualifying costs, your company could reduce your CT by an additional £130 on top of the £100 spent.
One important point to note: SMEs must own the intellectual property relating to the R&D project in question.
Larger companies – ‘Research and Development Expenditure Credit’ (“RDEC”) scheme
The RDEC scheme applies to companies that fall outside the SME definition. It covers qualifying expenditure incurred on or after 1 April 2013. It replaced the large company scheme in April 2016.
From 1 April 2015 the tax relief is given at 11% on the amount of qualifying R&D expenditure.
Currently, larger companies are not subject to a limit on the qualifying costs that R&D tax relief can be claimed on.
How do I receive the tax relief?
This will depend on the nature of the relief you are claiming:
- Tax relief is applied directly as a reduction in your business’ profit chargeable to corporation tax.
- Tax credits in place of enhanced relief will be paid by HMRC after they receive your return.
- Claims to carry back a loss to be set off against profits of a previous accounting period, HMRC will make the payment after they receive your return.
Claims which are subject to a compliance check may result in interim payments, with the full balance settled following conclusion of the enquiry.
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RESEARCH & DEVELOPMENT TAX ADVICE
Essential information about research and development tax.
Research and development tax relief is by far the most generous of all the corporation tax reliefs currently available.
To qualify for the relief, a company has to take on a project which seeks to make a technological or scientific advancement.There is also a requirement that, at the outset of the project, there is uncertainty as to whether the advancement is even possible.