Despite R&D tax relief being introduced in 2000, there still remains a misconception regarding what actually constitutes ‘research and development’ for the purposes of HMRC legislation and how to claim R&D tax relief.
Firstly, R&D tax relief and tax credits are still among the most under-claimed tax incentives currently available. The main reason behind the widespread failure of companies taking advantage of the reliefs is the misconception regarding what actually constitutes ‘research and development’ for the purposes of the HMRC legislation. Most company finance directors mistakenly believe that unless a scientist operating in a secret laboratory and dressed in a white lab coat is employed by the company, then R&D is not taking place. Indeed, a cursory glance at the current R&D legislation would undoubtedly suggest that this is a reasonable assumption to make. R&D activity does not have to be ‘blue sky’ innovation, nor does it have to consist of creating new technologies.
R&D tax relief Frequently Asked Questions
What is R&D tax relief?
For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology. R&D relief allows companies that carry out qualifying R&D related to their trade to claim an extra CT deduction for certain qualifying expenditure.
Am I eligible?
To find out if a company is an SME for R&D tax relief purposes you need to have:
• staff headcount of less than 500
• either a turnover of €100m or balance sheet total of less than €86m
What projects qualify?
To qualify the company must be carrying out research and development work in the field of science or technology. The relief is not just for ‘white coat’ scientific research but also for ‘brown coat’ development work. This is in the fields of design and engineering that involve overcoming difficult technological problems.
Things to consider:
- Does my company have a project?
- Am I seeking an advance in a field of science or technology?
- Does the advance extend the overall knowledge or capability in the field of science or technology
- Does the project involve uncertainty that competent professionals can’t readily resolve and where solutions aren’t common knowledge?
What costs qualify?
Direct and externally provided staff, subcontracted R&D, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief. Unfortunately, Capital expenditure does not qualify under this scheme, nor does expenditure on the production and distribution of goods and services.
Who has successfully claimed R&D tax relief?
Technological Advance: To replicate an existing product line, utilising vegan and sustainable materials, whilst ensuring the original feel and effect of the product was unchanged.
Technological Uncertainties included:
*Identifying what proportion of ingredients would have to be replaced
*The removal of certain ingredients resulted in detrimental effects unanticipated during conceptualisation
*The client wanted all the products to retain the company’s signature scent, so the developers have to re-formulate the signature scent
Value of the claim: £11,089
Technological Advance: The company sought to develop an entirely bespoke printing solution. They did this through the development and integration of numerous unique applications. This was designed to improve functionality, increase efficiency and reduce the risk of error.
Technological Uncertainties Included:
*Developing multiple applications with increased functionality and the capability to communicate with the Main CRM system from scratch
*The integration of bespoke disparate systems written in differing languages
*Increasing efficiency for both users and internal staff
*Ensuring the standard of the end products is amplified by the applications
*Safeguarding the print quality whilst improving the capacity
Value of claim: £15,512.93
Want to know more?
We are hosting an online webinar with more details of what R&D is, who is eligible and how to apply. Please register your interest by sending an email to us with the subject ‘R&D Webinar’.