What is Research & Development?

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What is R&D tax relief?

R&D tax relief was introduced in 2000 to encourage and incentivise UK businesses to undertake research and development (R&D) activities, as the government wanted to increase the percentage of GDP spent on R&D. This relief is not just for profit making companies, there is a benefit to all companies that are undertaking relevant activities.


What is the benefit of claiming?

There are two schemes available, the SME Scheme and RDEC for larger companies. For the purpose of the SME Scheme an SME is considered to have fewer than 500 staff and either not more than €100m turnover or €86m in gross assets. If the company is part of a group structure it will be the whole group that will need to meet this requirement. The benefit for an SME can be between 19% and 33% of the qualifying R&D expenditure, depending on whether the company is profit or loss making.

For larger companies claiming RDEC, the benefit is 13% of qualifying expenditure.

What is qualifying expenditure?

The costs that can be claimed for in projects where there is qualifying R&D activity are:

Staff costs

Including salaries, employer’s NIC, pension contributions and reimbursed expenses.

Subcontractor costs

Up to 65% of the total cost for SMEs. For RDEC claims only qualifying bodies such as universities and technical bodies can be claimed for.

Externally provided workers

Temporary workers provided by an external company.

Consumable materials

Materials and consumables including heat, light and power that are used during the R&D process.

Software

Software licences needed to deliver the R&D project.

But, most importantly, what is R&D for the purposes of R&D tax relief?

For a project to be considered to be undertaking R&D it must satisfy two basic criteria:

The project should seek to achieve a technological or scientific advance. An eligible project should add to the technical or scientific knowledge already available in the sector.

The project should seek to overcome a technological or scientific uncertainty. In an eligible project it is not known at the outset if a solution is either possible or how to deliver it and the information should not be readily available or deducible by a competent professional. However, even if someone else in the industry has already achieved the same objective, you can still potentially claim if the solution is not in the public domain and not obvious.


How to make a claim?

R&D tax relief claims are made to HMRC through your Corporation Tax submission (CT600).

However, we would recommend speaking to a professional R&D tax specialist to assist with any claim as the detail above is only the headlines of the scheme and there are many variables within each area.

Even if you are not certain whether you fully meet the criteria, we would always recommend checking; If you do not qualify, you can claim for two years, so you have not missed out on important tax savings.