Research & Development Tax Relief

Research & Development Tax Relief

A company employing engineers, scientists, software developers, or have developed new products, significantly improved existing products, or developed software in house may be eligible to claim Research and Development (R&D) tax relief.

R&D tax relief is a Corporation Tax relief that may reduce a company’s tax liability by more than the actual allowable R&D expenditure.

Starting April 2011, R&D tax relief will rise to 200%, followed by a further 225% in 2012 in an effort to help encourage the development of new services that will generate future revenues. 

For example, a software developer trading as a limited company with £10,000 of qualifying R&D expenditure, you will be able to claim £20,000 in tax relief. 

Generally, the relief is offset against a company’s Corporation Tax liability, however, companies making a loss may be able to receive a tax credit instead, by way of a cash sum paid by HM Revenue & Customs.

Qualifying R&D Expenditure

• Employee costs: Employing staff directly who are actively engaged in carrying out R&D itself. The staff must be employed under a contract of employment directly with your company or organisation - not consultants, agency workers, or staff/directors whose contracts of employment are with other companies.
• Materials: Consumable or transformable materials used directly in carrying out R&D. These are actual physical materials that are consumed in the R&D, and not things like telecommunication or data costs.
• Utilities: Power, water, fuel used directly in carrying out R&D, but not things like telecommunication costs and data costs.
• Software: Computer software used directly in the R&D.

Eligibility

To claim R&D, a business must be operating as a limited company with more than £10,000 on qualifying R&D expenditure.

Additionally, these guidelines state that the activity must contribute directly to seeking the advance in science or technology, and not simply an advance in its own state of knowledge or capability.

Projects that may qualify for R&D include: Creating new encryption or security techniques that do not follow established methodologies, developing new operating systems, creating new search engines using materially new search methods, creating new or more efficient algorithms whose improvements depend on previously untried techniques.

Based just off Old Street roundabout, Jeffreys Henry is a leading firm of Chartered Accountants in London, Registered Auditors and Tax Advisers.

For over 20 years, our pro-active and hands-on approach has helped entrepreneurial owner managed businesses such as Bebo, Smarta, Dot Digital and Satmetrix to start-up, develop and grow.

For further information, or to arrange a free initial consultation, please contact Justin Randall, Nick Michaels or Jon Isaacs on 0207 309 2222.