Research & Development

R&D Tax Relief – What’s that got to do with my company?

It’s not just for mad scientists!

R&D tax relief is an extremely generous system of tax relief available for companies who are doing innovative work into new or improved systems, processes, services or products in the areas of technology/science.

HMRC are extremely keen for qualifying companies to claim R&D tax relief, because the Government sees science and technology as being at the heart of Britain’s economic future and they want to encourage such businesses to push forward and keep on innovating.

So what counts for R&D tax relief?

There needs to be a project with aims and objectives – accidental discoveries don’t count – and there needs to be “advance” in science and technology.  Think of it as breaking new ground and benefitting the industry as a whole, rather than going over old ground.  The project must be in the fields of “science or technology” but that is an extremely wide ranging area and we have seen R&D take place across many industries from food technology, green technologies, engineering and manufacturing to software, new media and even motor racing.  And there must be uncertainty- that means that trials and tests are needed and that someone in the industry who knows what they are doing could not figure it out as a matter of course; as HMRC put it, “that the knowledge being sought could not be readily deduced by a competent professional”.

And what does that mean in real cash terms?

R&D tax relief allows companies to claim an extra tax deduction for spend incurred on R&D work, such as salaries, items used up in the project and subcontractor costs.  The extra tax deduction saves real cash for profitable companies as it reduces their corporation tax bill, while loss making companies can surrender losses for a cash payment from HMRC.

For small and medium companies a “superdeduction” is available against spend on qualifying costs.  The rate of uplift is 130% from April 2015, which broadly means that if your company spends £100k on qualifying R&D costs after April, it can put £230k as a deduction through its tax computation – which gives tax relief on £230k while only spending £100k.

For large companies the tax relief operates differently and isn’t as generous …but is still effectively “free” money so well worth claiming.

Don’t be put off by any misconceptions you have about R&D tax relief only being available to mad scientists.   We can help you make sure you not only get the number crunching right but – crucially – your company gets the relief it is entitled to and you make the best claim possible for your company.

If you would like more information on how we can help you with R&D tax relief please contact Kathryn Brown.

 

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