Research & Development (R&D): Is your (or your Client’s) company missing out on valuable tax relief?

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.

Introduction

For many years there has been the misconception that only companies involved in cutting edge technologies could make claims under the UK’s Research & Development Tax Relief (“R&D”) scheme.

This has led to thousands of companies missing out on significant tax breaks.

ETC’s resident R&D specialist Mark Ingram explains all about this attractive relief…

 

What is R&D?

R&D claims are not limited to those businesses that work in the high-tech industries; in fact, many manufacturing, engineering and other companies have the potential to make significant claims.

One of the main criteria for a successful R&D tax credit claim looks at whether something has been significantly improved.  This can be as simple as making something lighter, faster or simply more efficient.

In fact, R&D is not limited to creating or improving products, making your manufacturing process more efficient also falls within the definition of R&D.  The key to a successful claim is being able to show that you have been attempting to make some form of advance or overcome technical problems.

As a result, a wide range of industries can claim R&D credits, we have seen successful claims for companies as diverse as food & drink producers, building contractors, software designers, engineers and architects.  In fact the largest single claimants of R&D tax relief are banks who spend significant amounts developing in-house software.

 

So which businesses can claim?

As mentioned the legislation does not restrict R&D tax relief to high-tech companies and as a result companies in a wide range of industries may be able to benefit: e.g.:

 

Pharmaceuticals Chemicals & glues
Software & IT Engineering
Food & Drink Waste recycling plants
Manufacturing Foundries
Electronics & Electricals Video games development

 

 

Benefits of making a claim

With effect from 1 April 2015, small or medium-sized enterprises (SME) are entitled to claim a tax deduction equivalent to 230% of their qualifying expenditure in the year.

For example, if you spend £10,000 on research and development, you are treated as if you had spent £23,000 when calculating your taxable profits.

Prior to 1 April 2015, the tax deduction available to SME’s was 225%.

The net result of this is a reduction in the tax payable for a profitable company now and in future.

But R&D is not just for profitable companies a loss making company who is undertaking R&D may surrender losses and claim a tax refund equal to 14.5% of the surrendered loss (this equates to just under a third of your actual qualifying expenditure).  Before 1 April 2015 the tax refund is was 11% of the surrendered loss.

Claims need to be made within 2 years of the company’s year-end. This means you can potentially claim for all qualifying expenditure incurred in the past 36 months.

 

Is it difficult to make a claim?

Whilst the R&D process can be complex and the claim looks at a variety of areas where costs are incurred, Enterprise Tax Centre can guide you through the process and do the bulk of the analysis for you.

Items of expenditure that potentially qualify are:

  • Staff costs for those involved with the R&D project
  • Consumables (items used in the R&D process)
  • Software costs
  • Light, heat and power costs (a proportion of these can be claimed)
  • Subcontractor costs (a proportion of the costs could qualify)

If you have any questions or would like to discuss the potential to make a claim on a no obligation basis, please contact us.

 

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