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R&D Tax Relief – ensure your innovation is rewarded in an increasingly challenging marketplace

Throughout the pandemic we have seen more and more companies successfully claiming Research and Development (R&D) Tax Relief for innovating projects in science and technology. However, this increase in R&D activity has also seen a rise in fraudulent R&D claims being made. Recently HMRC informed registered agents that they were investigating a number of irregular claims, and on 14 June HMRC issued further guidance and announced that turnaround times to process R&D tax credit claims will increase to 40 days to allow them to enhance their extensive compliance checks. It is now more important than ever to ensure that R&D claims are meeting the qualifying criteria and that you engage with a qualified advisor on the matter.

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 believing 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 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, the main cost will be a portion of any staff member’s salary that relates 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.

With HMRC starting to take a tougher stance on R&D claims it is important that the advice you are obtaining is not only from someone who is qualified to provide this advice, but they are also governed by the appropriate guidelines. This will ensure that not only will the claim be prepared in accordance with the guidelines identified above but you will also have the confidence that the claim is not going to cause the company issues further down the line. As we are governed by the guidelines on this matter, we are best placed to support and guide you throughout this process.

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 June 2022.

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