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R&D: The Tax Relief Designed to Bolster the Economy

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

“Productivity is the challenge of our time. It is what makes nations stronger and families richer. Growth comes from higher productivity” – George Osbourne 2015.

If the UK was as productive as the US (per hour worked) the UK’s GDP would increase by 31% (THIRTY ONE). Every household would have an extra £20,000 (TWENTY THOUSAND) per annum.

So how do we match the US’s productivity?

Two thirds of our lag against the US is attributed to weaker innovation.

So, the government wants businesses to innovate.

How does the government incentivise businesses to innovate?

By using tax as a carrot  and offering a massively generous tax relief aimed at innovative companies:

RESEARCH & DEVELOPMENT TAX RELIEF

How does it work?

This relief gives an enhanced 230% tax deduction to eligible expenditure on a Research & Development (R&D) project. In simple terms:

  • Profit-making companies can save £26 of Corporation Tax for every £100 of R&D expenditure identified
  • Loss-making companies can exchange losses arising from R&D relief for a cash payment from HMRC equal to £18.85 for every £100 of R&D expenditure identified

Don’t you need to wear a white coat and work in a lab to qualify?

No! This tax relief is available to all sorts of companies. We’ve recently made successful claims for:

  • Photographer
  • Curtain pole maker
  • Pension administrators
  • Engineers
  • Architects
  • Business consultants
  • & yes, scientists – stem cell researchers

The misconception that the relief is only for scientists means around only 25% of companies which are eligible for the relief are actually claiming it!

What do I need to do to qualify?

To qualify for the relief a company needs to undertake a project which:

Ø  Advancement – Aims to make a technological or scientific advancement. This isn’t as daunting as it may sound. Even just improving a process or product can be a technological advancement

Ø  Uncertainty – Has some uncertainty at the start of the project as to whether the advancement could be made (otherwise there would be no need for research or development!)

Ø  Competent professional – Uncertainties that can readily be resolved by a competent professional working in the field are not scientific or technological uncertainties

Here are some useful questions to identify R&D projects:

  • Have you developed or improved an existing product or processed used in the business?
  • Have you developed completely new bespoke software in-house?
  • Do you employ scientist, engineers, researchers or developers to innovate products/processes?
  • Have you subcontracted any projects to consultants to improve products / processes?

Which costs qualify?

The main types of eligible expenditure are:

  • Staff costs
  • Pension costs
  • Software
  • Consumables
  • Subcontracted costs

How long have I got to make a claim?

Two years from the end of the accounting period in which the expenditure is incurred.

E.g. A company with R&D expenditure in the year to 31 July 2015 has until 31 July 2017 to make a claim.

How can ETC help?

If you think your or your client’s company has R&D expenditure, please get in touch and we can:

  • Confirm that the project should qualify for R&D
  • Assist in identifying costs to maximise the claim
  • Prepare a report to send to HMRC detailing why the company qualifies
  • Submit an amended Corporation Tax Return for the period
  • Arrange a repayment of cash from HMRC.

Companies shouldn’t be missing out on relief for helping to grow our economy.

 

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