R&D Tax Relief - Innovation assisting recovery and growth
Throughout the pandemic we have seen more and more companies examining and successfully claiming Research and Development (R&D) Tax Relief for the innovation that they have undertaken, providing a much needed cash boost during the most difficult of times. However, there are still a significant amount of companies who are not claiming this relief when they could well be entitled to do so, potentially benefitting the company with up to 33.35p for every £1 identified as R&D spend.
R&D Tax Relief is a government incentive designed to reward companies that have made an advance in science and technology by overcoming a scientific or technological uncertainty to achieve this advance.
It is the wording identified above that tends to make companies believe that they do not qualify for R&D Tax Relief, with many believing that this restricts the tax relief to white coat scientific research or that overcoming problems is part of their day to day job.
However, HMRC guidelines relating to R&D demonstrate that the tax relief is available to a much wider audience.
An advance in science and technology can include creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. This is not restricted to white coat research but can be equally applied to brown coat development work in design and engineering that involves overcoming difficult technological problems.
The key to filing a successful R&D Tax Relief claim is to show that the work the company has carried out has extended overall knowledge in a field of science and technology and that the uncertainty involved in the project could not be readily resolved by a competent professional or solutions to the uncertainty were not common knowledge in the industry.
Examples of areas where successful claims have been made include software development, engineering design, product development, new construction techniques, bio-energy, cleantech, agri-food and life and health sciences.
In terms of the costs that qualify for R&D Tax Relief, the main cost will be a portion of staff costs that relate to R&D. Other costs that can be claimed for include third party contractor costs, materials used for prototypes and software used for R&D purposes.
For every £1 spent on R&D costs the company is entitled to an additional £1.30 as a deduction against trading profits. For a profit making company, this will equate to an additional 24.9p of tax relief for every £1 spent on R&D. For a loss making company, this will equate to a cash repayment of up to 33.35p for every £1 spent on R&D.
For advice and guidance on R&D Tax Relief and if it is applicable to your business please contact Phil Hartley for a no obligation conversation.
Written August 2021.