Research & Development (R&D) Tax Credits
Updated: Aug 4
R&D tax relief is a scheme put in place by the UK Government to incentivise innovation. For those of you running or working for companies that are incurring costs that meet the definition of R&D, tax relief may be available in the form of a tax rebate, or a reduction in taxable profits, therefore lowering future tax bills.
By way of an example, a company incurring allowable R&D costs of £15,000, would be entitled to an additional £12,900 of tax relief. Most recent published HMRC statistics show that £6.6 billion was claimed in the 20-21 tax year alone.
Some proprietors are deterred from investigating this incentive, because they believe the relief is reserved only for ‘research’ businesses or those in scientific or technological fields. There are restrictions, but the scope is a lot broader than you’d think.
The scheme in some form has been in place since the year 2000, introduced by Tony Blair’s Labour party to improve the UK’s innovation and wealth generation.
The claiming of R&D tax relief has in itself become big business, with new companies set up specifically to seek out claimants, and then broker an application, in exchange for a % of the tax saving. There have been some abuses through aggressive and often tenuous claims, and some of the work has been subcontracted overseas.
This has lead to tighter rules being rolled out in the current tax year.
Any company can apply for R&D tax relief, provided the project you worked on:
looked to advance your overall field, not just your business,
had to overcome a scientific or technological uncertainty,
tried to overcome a scientific or technological uncertainty,
and could not be easily worked out by a professional in the field.
Your project may research or develop a new process, product or service or improve on an existing one.
What costs can be included
As a general rule, any revenue expense (see previous message) that was wholly and exclusively incurred in the delivery of the project would be in scope. This would include:
Staff costs – wages, employer NI and pension contributions etc
Subcontractors – 65% of outsourcing costs
Consumables – any purchases consumed in the R&D process such as materials, utilities, office supplies etc.
Software - includes data storage, hardware facilities and operating system
How is the relief applied
For profit making companies, all in-scope costs are added together and multiplied by 86% (0.86). This figure is then added on to your allowable costs, on top of the original expenditure.
For loss making companies, the relief is surrendered in favour of a tax rebate.
Relief is applied differently for large (>500 employees) companies
How to claim
The first step is to make an assessment as to whether you have qualifying expenditure. You should do this by referring to the full qualification criteria accessible via the link here.
If you feel you have a legitimate claim, then a supplementary information form should be completed and submitted to HMRC justifying your claim.
Finally, the additional tax relief is included in your regular corporation tax return (CT600) and submitted to HMRC at the conclusion of your accounting period.
If you feel your company may qualify, and would like some support in making your assessment please let me know.