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Is your company making the most of Research and Development (R&D) tax relief?

Tuesday, March 8th, 2016

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Although the Research and Development (R&D) tax credit scheme has existed in the UK since 2000, the period since 2008 has seen a significant ramping-up of its scope, leading to many more claims from companies eager to gain tax benefits from their innovation.

As the name of the scheme suggests, R&D tax relief reduces companies’ Corporation Tax (CT) bill when they invest in qualifying R&D. There is a scheme for small or medium-sized enterprises (SMEs) and another for large companies, and your firm could claim cash payments of as much as 33% of your qualifying expenditure on R&D.

Is my own company eligible for R&D tax relief?

If your company incurs costs in the development of new products, processes or services, it could qualify for a cash payment or reduction in its CT. Your company’s R&D project will only qualify for the relief if, in the words of HMRC, it “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 – and not simply an advance in its own knowledge or capability.”

The R&D project in question also needs to be related to your company’s trade, whether an existing one or one that you intend to start up based on the outcome of the R&D. Furthermore, if you are using the SME scheme, you must not own any intellectual property that may arise from the project.

So, does my company need to create something from scratch?

HMRC’s references to the need for scientific advance has often deterred companies from applying for R&D tax credits in the past, in the mistaken belief that they are only available to organisations creating something completely new from scratch.

The truth is that your company can still access such relief even if it is merely developing a process or product already existent in the industry, but where the information to resolve the technological uncertainty is not readily available. Your firm could also be simply improving an existing product or process or duplicating an existing one in an appreciably improved way.

Nor does the work even need to have been successful – a claim can still be made even if it merely aims to achieve a scientific or technological advance. Bear in mind that the scheme’s definition of science does not cover work in the arts, humanities and social sciences, such as economics.

Talk to Accounting People about your firm’s eligibility for R&D tax relief

Did you know that between the launch of the R&D tax credit schemes in 2000-01 and 2013-14, almost 120,000 claims were made and over £11.4 billion in tax relief claimed? More than 33,800 companies had made claims under the SME scheme by the end of 2013-14, along with an additional 7,800 under the large company scheme.

However, with only 15% of potential claimants even being aware of R&D tax relief and its benefits, an estimated £1 billion worth of R&D tax relief continues to go unclaimed each year. It all suggests that if you get in touch with Accounting People to discuss your potential eligibility for R&D tax relief in more detail, you may well be pleasantly surprised by what you discover.

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