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Research and Development

Could your project qualify for Research and Development tax relief?

What is Research and Development tax relief?

Research and Development (R&D) is crucial for an economy’s productivity and long-term growth.  R&D tax relief is a company tax relief that can either reduce a company’s tax bill or, for some small and medium enterprises (SMEs), provide a cash sum.  The size of the relief is based on the company’s expenditure on R&D.

For a company to qualify for the relief they must be working on a project that is seeking an advance in science or technology through the resolution of technological or scientific uncertainty.  The project being undertaken must also relate to the company’s trade.

Under current legislation SMEs can claim enhanced relief of 130% on qualifying expenditure.  So for every £1 spent, the company will receive an additional £1.30 deduction against their taxable profit, therefore creating a significant tax saving.

It is important that businesses make the most of this relief as it is often forgotten about.

The amount of SMEs claiming this tax relief in 2013/14 increased by approximately 19% to over £15,000, with the total amount of support provided through the SME scheme at £800m.

HM Revenue & Customs (HMRC) plan to make access to R&D tax relief easier for businesses by providing advance assurance over claims, creating awareness, and ensuring a better understanding of how the relief works.

What expenses qualify for the relief?

Only certain items of expenditure qualify for R&D tax relief, such as:

  • employee costs
  • materials
  • payments to clinical trials
  • utility expenses
  • software
  • subcontracted R&D expenditure
  • capital expenditure

How do businesses claim the relief?

The tax relief claim needs to be included in the company’s Corporation Tax return for the year in which the expenditure was incurred.  Claims can be difficult to prepare and it is best to seek professional advice to make sure your claim is accurate and that you are making the most of the tax saving available.

From November 2015 the smallest companies (those with turnover of less than £2m and fewer than 50 employees) are able to apply for advance assurance from HMRC and, if successful in that their claim qualifies for the relief, they will not receive an enquiry on their first three years of R&D claims.

At David Allen we can discuss your company’s current projects and assess whether these are likely to qualify for R&D tax relief.  We can also help prepare your claim and work alongside you and HMRC when requesting advance assurance.

For further information on R&D tax relief please give us a call on 01228 711888.