It is acknowledged in Government circles that Research and Development (R&D) is crucial to the future of Britain, and in support of this there are tax reliefs available in a surprisingly wide range of activities. In certain respects these have been extended and their application has been made easier for businesses. Here’s an outline of what can be obtained.
Your business may well come up with novel ways of producing your products, or you may develop innovative software solutions: there are many possibilities, in multiple sectors where intellectual property (IP) is created.
Since it began in 2000, R&D tax relief has been expanded and fine-tuned to encourage and reward innovation.
There are two distinct R&D Relief schemes to be aware of:
1. SME scheme
The scheme for small and medium enterprises can be applied in two ways:
- Companies can use the relief to lower their taxable profits or increase their declared losses, to their benefit in taxation terms; or
- A straightforward cash credit can be applied for.
Qualifying SMEs must have –
Less than 500 staff, as well as either:
- Annual sales under €100million; or
- Assets on their balance sheet of under €86million.
By any standards, this sets the bar very high, enabling a huge swathe of SMEs to potentially qualify.
Since April 1st 2015 there has been an increased R&D tax relief on qualifying expenditure of 230% against profits (the original P&L deduction plus 130%).
If the business is loss-making, it can claim a tax credit up to 14.5% of the loss.
2. Large company (R&D Expenditure Credit) scheme
Larger companies have a newly-revised regime since January 1st, 2018, called the R&D Expenditure Credit (RDEC) scheme. The benefit is a taxable credit of 12% (previously 11%) based on qualifying expenditure. The net tax benefit (9.72%) can be used to lower the tax due, or be claimed as a future credit if corporation tax is not due in the applicable year.
HMRC’s recent improvements to these schemes are:
- Reimbursed staff expenses are made clearer
- The definition of consumable costs is formalised
- SMEs who file their initial R&D claim get a 3-year advance assurance
- Greater assistance for and consultation with small start-ups etc.
What to do next
Making a claim is not just an accounting issue: there is an obvious need to make the technical case that R&D is genuinely going on and that it qualifies for the reliefs on offer. Odiri Tax Consultants will help you negotiate these issues, using our in-depth knowledge.
We can advise you on the type of report that is most likely to make a cogent case for HMRC to grant relief. Your technical function will need to be involved.
The good news is that in our experience, the inspectors are more used to this scheme than in the early years, and they can be supportive. That said, once a scheme is up and running they will expect there to be proper ongoing reports and records to document the R&D that you are claiming for.
The value of experience
Odiri Tax Consultants spends far more time discussing and negotiating with HMRC than any individual company: and the cost of using us will be more than outweighed by the value that we add in terms of securing the most advantageous tax concessions – as well as avoiding potentially very expensive fines if a company breaches the terms imposed by law.
Let’s talk today and see if you can qualify for R&D tax reliefs.