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Contact Us ▪ Introductory Meeting / Quote
Call: 0207 309 2222
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 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 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.
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.
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.
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:
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.
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.
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.
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.
The use of sub-contractors outside the UK need not affect your claim for tax relief.
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.
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.
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.
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.
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.
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.
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:
Parminder is a CTA qualified Corporate Tax Specialist with significant R&D Tax experience.
Being close to Silicon Roundabout and London’s Tech City UK, Jon assists a large number of technology and digital companies with their R&D tax relief.
Virali specialises in Research and Development tax relief, an area which she has been solely focusing on since 2016.