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Research and Development is an important part of many businesses, whether it be in the technology sector, manufacturing or even the food industry. For Companies carrying out R & D there is a special tax relief available which is one of the most generous tax reliefs in the UK. The relief is available to all Companies who carry out Research and Development.
What is the Tax Relief?
Research and Development Tax relief allows a Company which is an SME, to uplift the cost of relevant expenditure by another 130%. For example, if a Company spends £100,000 on staff costs to develop a new design of a product, that qualifies as R & D! the expense is then uplifted again by £130,000 for Corporation Tax purposes resulting in an additional tax saving of £24,700 (using 19% as the CT rate). If the Company was in its development stage and was not yet profitable, the R & D expenditure could be surrendered for a cash payment. In the same example, the Company would receive a payment from HMRC of up to £33,350, (14.5% of the relevant expenditure) – a nice addition to cash flow!
What projects qualify
It may not be obvious to the Company owner that research and development is taking place because of the perception that it needs to be done by a person in a white coat in a lab somewhere. Research and Development takes place where a project seeks to ‘achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty’. In fact, if the project fails, R & D tax relief can still be claimed
There are a wide range of eligible projects that qualify, including:
- development of software/applications/operating systems
- The design of new packaging
- Resolving a problem with hardware/software/a production line
- Working on a new recipe
The question to ask yourself is ‘Did we do something where there was there an element of uncertainty of the outcome at the outset’. If the answer to that question is yes, the possibility of an R & D tax relief claim should be explored.
Costs eligible for the relief include:
- Staff and subcontractor costs
- Materials and consumables
- Software licences
- Apportionment of overheads
There are different rules for large companies and/or those that receive grant aid towards the R&D work. The relief is not quite so beneficial but can still be substantial
Making A Claim
A claim can be made retrospectively, up to 2 years after the end of the relevant accounting period meaning the benefit could cover 2 years, not just one. A report detailing the projects undertaken and a calculation of the eligible expenditure is needed alongside the Corporation tax return.
Gerald Thomas Chartered Accountants are experts in R & D Tax Relief and can assist you in making a claim. We have over a 95% success rate on claims, an initial consultation is free and the cost of making the claim usually works out as a small percentage (around 10%) of the tax benefit achieved.
For more information, contact Gerald Thomas Chartered Accountants on 01792 465155, email email@example.com or visit