Research and Development (R&D) Tax Relief is a tax incentive from the UK Government designed to encourage companies to invest in R&D. Both Small and Medium Sized Entities (SMEs) and Large Companies undertaking R&D related activity can claim a generous corporation tax deduction or a cash refund from HMRC.
PROFIT MAKING SMEs
Profit-making SMEs can reduce their corporation tax bill, or receive a corporation tax repayment for any corporation tax already paid. At current tax rates (19%), this could generate relief of up to 24.7p for every £1 spent.
LOSS MAKING SMEs
Loss-making companies can surrender the losses in exchange for a cash refund from HMRC of up to 33.35p for every £1 spent, and therefore has the potential to greatly improve a company’s cash flow position.
Companies that have never claimed R&D tax relief can claim back two financial years. For example, a company with an accounting year end of May 31st 2019 has until May 30th 2021 to claim or lose out.
During the Coronavirus pandemic, HMRC have confirmed they are still processing R&D claims with an average turnaround time of 28 days.
QUALIFYING R&D
HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field.
Whatever size or sector, if your company is taking a risk by attempting to resolve these uncertainties, then you may be carrying out qualifying activity. This could include creating a new process, product or service, but may also include changing or modifying an existing product, process or service in order to make it better.
- Does your company have a defined project?
- Is this innovative and an advance in a field of science or technology?
- Does the advance extend to the field of science of technology or just improve the company’s own knowledge?
- Does the project involve uncertainty that cannot be resolved by competent professionals and involve new solutions that are not common knowledge?
FREE R&D ASSESSMENT
In our experience, claims are often overlooked because business owners over-estimate the level of innovation required to claim. Contact us for a free assessment.
Jeffreys Henry LLP are specialists in hunting down every qualifying R&D cost and activity in your business. In recent years, we’ve secured over £68 million of R&D claims on behalf of our clients, with an average client claim £102,000 and the largest claim of £1.1 million.
FREE R&D ASSESSMENT
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R&D Tax Relief
Frequently Asked Questions
What activities qualify as R&D?
To receive R&D Tax Relief you need to ensure that you have carried out an R&D project which meets the government definition for tax purposes and have incurred qualifying costs on this project.
HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field.
Whatever size or sector, if your company is taking a risk by attempting to resolve these uncertainties, then you may be carrying out qualifying activity. This could include creating a new process, product or service or improving on an existing one.
To claim R&D relief projects must meet all of the following criteria:
- aims to create a scientific or technological advance in the overall field.
- has or has tried to overcome scientific or technological uncertainty.
- the uncertainties could not be easily worked out by a professional in the field.
Whatever your R&D project, R&D claims are increasingly being scrutinised therefore good record keeping and a strong technical narrative to substantiate your R&D claim is important.
Which expenses qualify for R&D tax relief?
Many first-time claimants find it difficult to identify the activities and costs they incurred in the last two accounting periods. Our R&D experts ensure all qualifying activities and expenditure is identified in order to maximise the claim. It is important to note, not all R&D related expenditure qualifies for R&D.
In order to claim R&D tax credits, you must have incurred revenue expenditure in relation to qualifying R&D activity. The following categories of expenditure can be included:
Staff Costs: Cost of directly employing staff who are actively engaged in R&D activity. Includes: class 1 NIC, pension fund contributions, bonuses and (if applicable) payment to subjects involved i.e. for clinical trials.
Externally provided workers and subcontractors: Cost of paying a staff provider for staff provided to the company, or a sub-contractor who is directly and actively engaged in carrying out R&D activity.
Consumable Items: Consumable or transformable materials used directly in carrying out R&D.
Software: Revenue expenditure incurred on computer software employed directly in R&D.
Utility Costs: Power, water and fuel used directly in carrying out R&D.
What kind of projects do not qualify for R&D tax credits?
Routine analysis, copying or adaption of an existing product, process, service or material, as well as attempting to improve the cosmetic or aesthetic qualities of a product, process, service or material will not itself be R&D. However, work to create certain cosmetic or aesthetic effects through the application of technology can still qualify. Other non-qualifying activities include but are not restricted to, commercial or financial steps necessary for innovation, production, distribution, storage and repair.
How do I get my money?
If your company is loss-making, you can claim back up to 33% of your qualifying spend by surrendering a loss created by the relief for a payable cash credit. In other words, you can get up to 33p back for every £1 you spend.
If you are profit-making, you can claim back up to 24.7% of your qualifying spend, i.e. 24.7p for every £1 you spend. This is a reduction in your corporation tax liability. Where you have already paid your tax bill, the relief is given in the form of a corporation tax repayment. It is possible for the relief to create a loss, in which the loss created by the claim can be surrendered for a cash credit from the government.
I use foreign subcontractors from outside the United Kingdom, can I claim on those costs too?
The use of sub-contractors outside the UK need not affect your claim for tax relief.
How many times can I claim?
You can claim R&D tax credits after each financial period (when you submit a corporation tax return) as long as you are creating a new advancement in science or technology.
How long does the process take?
Our R&D tax team can prepare your claim within 1 week of receiving all the necessary information. Once the claim is submitted, HMRC generally take 4 to 6 weeks to process a claim.
How far back can I claim?
The R&D incentive is a Corporation Tax Relief. It is inserted in the Corporation Tax Return and the deadline for amending this return is 24 months after the end of your accounting period. Therefore, you are able to claim back two financial periods. For example, a business with an accounting year end of May 31st 2019 has until May 31st 2021.
How do you quantify a claim?
The R&D claim is based on a just and reasonable assessment of the proportion of costs relating to research and development activities, i.e. time spent by R&D staff on qualifying activities. There is no requirement to record time against R&D projects, however it could prove beneficial in ensuring a robust claim is put forward to HMRC.
Does my project qualify?
HMRC qualify research and development as overcoming technological and scientific uncertainties or challenges; aiming at achieving a technological and scientific advance that couldn’t be easily worked out by a professional in the field. In our experience, claims are often overlooked because business owners over-estimate the level of innovation required to claim. Contact us for a free assessment.
Can you work with my accountant?
We work with a large number of external accountants. Our team are happy to liaise directly with your accountants to obtain all the relevant financial documentation. We will prepare a technical report and a claim statement that your accountant can use when submitting your corporation tax return.
Can directors’ dividends be included in R&D tax credit claims
Directors’ dividends are not classed as qualifying expenditure for the purposes of research and development (R&D) tax credits. Therefore, you cannot include these in your claim. While there are personal tax benefits from being remunerated via dividends, rather than a salary, this could have a substantial effect of the value of an R&D tax credit claim.
The staff costs that can be included in an R&D tax credit claim include:
- Salaries
- Employer NICs
- Employer pension contributions, and
- Some reimbursed business expenses
PROCESSING R&D DURING SOCIAL DISTANCING
Jeffreys Henry LLP provide an end-to-end service that makes claiming R&D tax credits easy for you.
1
FREE R&D ASSESSMENT BY PHONE OR VIDEOCALL
We will speak to your finance and tech team via phone or video call to review qualifying R&D activity.
Call Now: 0207 309 2222
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R&D CLAIM PREPARATION
Our dedicated R&D account manager will work with you to document each R&D activity and split out the qualifying costs.
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SUBMISSION TO HMRC
Once finalised, we’ll submit your claim to HMRC’s specialist R&D unit.
FURTHER R&D TAX ADVICE
CONTACT US FOR FURTHER INFORMATION, OR TO REVIEW YOUR R&D CLAIM.
PARMINDER CHATTHA
Partner - Corporate and R&D Tax
Parminder specialises in Research & Development Tax Credits, leading the R&D department at Jeffreys Henry LLP. Since joining the Firm in 2015, he has been working closely with both SMEs and large businesses to analyse and maximise their Research and Development claims. He has so far secured over £70 million in R&D tax relief and credits for our clients.
KATE GREENHOUGH
R&D Director
Kate is a CTA qualified tax specialist with significant R&D tax experience. Kate has over 10 years of specialist experience in advising start-ups to PLC analyses, preparing and submitting robust R&D tax relief claims and Patent Box claims in line with the latest HMRC guidance. Her sector experience spans FMCG (fast-moving consumer goods), automotive, financial services, healthcare, manufacturing, construction, and food and drink.
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