R&D tax relief

UK Research and Development – R&D tax relief is one of the most effective and generous tax reliefs in the world. Claiming the government-backed relief can significantly reduce a company’s tax bill, and even result in a tax refund.

However, many companies that are entitled to the relief, do not claim either through lack of awareness or because it seems complex or inappropriate to their business. R&D tax relief is not just for traditional scientific research but also for development work in design and engineering.

What is R&D tax relief?

R&D tax relief rewards companies that invest in innovation, developing new technologies to substantially improve products, processes, devices, materials and/or services.

The requirements are purposefully broad. Whatever size or sector, if your company is taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then you may be carrying out qualifying activity.

R&D does not have to have been successful to qualify. You can also include work undertaken for a client as well as your own projects.

All companies, large and small, can claim if they undertake qualifying work – even if they do not pay Corporation Tax because they are unprofitable.

What is it worth?

Some companies will be eligible for up to 230% on their qualifying R&D costs. So, if your company is paying Corporation Tax at the current rate of 19% and spends £100,000 on qualifying R&D it could save tax of £43,700. Loss-making companies can surrender their losses in certain circumstances in return for a payable tax credit.

Research and Development Expenditure Credit (RDEC) scheme

From 1 April 2020, a taxable credit is available at 13% of qualifying R&D expenditure. For loss making companies, the tax credit is fully payable (subject to certain restrictions). Companies with no Corporation Tax liability will benefit from RDEC through either a cash payment or a reduction of tax or other duties due. The payable credit is limited to the company’s PAYE/National Insurance contributions liabilities of the staff taking part in qualifying activities in the accounting period.

What costs qualify?

The types of costs that can qualify for R&D tax relief is extensive and can include:

• direct and externally provided staff
• subcontracted R&D
• consumables
• software
• trials and prototyping
• independent research costs

Capital expenditure does not qualify under this scheme, nor does expenditure on the production and distribution of goods and services.

How do I make an R&D claim?

We urge all companies to meet with a member of our Tax team to explore whether your company could benefit from making a claim. 

R&D webinar

Our tax experts explain everything you need to know about R&D tax incentives in our webinar.

Case study

A client made a part which was fitted onto most vehicles. Originally the part was made out of lead (a toxic substance) so if it came off, which it often did, and found its way into lakes, rivers and pools it could damage the wildlife.

Our client decided to seek to change the metal and started manufacturing out of zinc instead. It was the same product but more environmentally friendly. HMRC agreed that this was a valid R&D tax relief claim and allowed tax relief.

Get in touch with us to see whether you can make a claim.

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