Since the R&D tax relief scheme’s introduction in 2000, the UK government has set itself a target to spend 2.5% of GDP on Research & Development (R&D). This target is yet to be achieved, with 2018 only resulting in a 1.7% spend.
This begs the question, is your company missing out on claiming and if so, why?
The fact is that companies which are carrying out R&D activities are often unaware that they are doing so.
Is your company eligible for R&D tax relief?
R&D tax relief is available to UK companies who are carrying out R&D as part of their trading activities. Many companies fail to identify that they are seeking a scientific or technological advance. R&D does not have to involve white lab coats and test tubes; an advance can be as simple as generating a new method to create a product or improve efficiencies. R&D can be carried out in almost any industry. Company directors and shareholders may also consider the following:- Is my company seeking an advance in a field of science or technology to create a new product, process, or service?
- Does seeking the advance involve uncertainties and challenges for which the solution is not easily ascertainable?
- Would another professional in the field struggle to find the solution?
How does R&D tax relief work?
A company which has incurred qualifying revenue expenditure on R&D has the option of claiming additional tax relief. Where the company is a Small or Medium-sized Enterprise (an SME), the company may claim an additional deduction at 130% of its R&D expenditure. A company is classified as an SME if it has less than 500 employees and turnover below €100m or gross assets of less than €86m. If the SME company is profit-making, this will result in tax relief equating to almost 44p for every £1 spent on R&D. Where such claims are made, the government is essentially funding almost half of the R&D project. Where the relief creates or increases a loss, the company may surrender that loss for a cash tax credit. For loss-making companies, the tax relief available equates to 33p for every £1 spent on R&D. A large company has the option of claiming the R&D Expenditure Credit (RDEC). Under the RDEC scheme, companies can claim back up to 11p for every £1 spent on qualifying R&D expenditure.Which costs could qualify for R&D tax relief?
- Wages costs (including Employers NI and pension costs)
- Subcontractor and externally provided worker costs (usually restricted to 65%)
- Software costs
- Materials and consumables