According to the latest statistics from HMRC, there has been a continual upward trend in the number of UK companies claiming Research & Development (R&D) Tax Relief and R&D Tax Credits to help fund R&D activities since the regime was first introduced back in 2000.
So, what is R&D Tax Relief?
It is a valuable Government incentive to encourage innovation in science and technology. Companies engaging in qualifying R&D activities can claim tax reliefs or credits (i.e. cash back) on the cost of those activities.
There are two schemes available: the SME scheme and the RDEC scheme (usually for larger companies).
Small or medium-sized UK businesses (SMEs) can receive up to £33.35 of additional cash support for every £100 of qualifying R&D costs under the SME scheme, and for large UK companies a cash incentive of £9.72 for every £100 of R&D spend under the RDEC scheme.
More than 240,000 claims have been made since 2000 equating to £21.4 billion in tax relief, with 40,000 claims being made for 2016-17 so far (with more yet to come) mostly under the SME R&D scheme. This is an impressive amount of tax relief that has been claimed by many worthy businesses. However, we are certain that many other businesses are missing out on this vital relief.
It comes as no surprise that the vast majority of claims come from the “Manufacturing”, “Professional, Scientific and Technical” and “Information and Communication” sectors, accounting for 75% of the total amount claimed for 2016-17.
It is important to note that the relief is not just available to “white coat” scientific research, but can equally apply to other industries, such as property construction, recruitment and even restaurants!
It is our experience that many businesses are simply unaware of the reliefs on offer or they are aware but believe they are not doing anything sufficiently “innovative” to warrant a claim.
Although not available for pure product development, the relief can encompass expenditure on creating new (or making appreciable improvements to existing) processes, products and services.
If you are seeking an advance in a field of science or technology or looking to overcome an uncertainty that competent professionals cannot readily resolve, then you may have the basis for a valid R&D tax relief claim. R&D Tax Relief is even available on unsuccessful projects!
How might you determine if you are undertaking R&D?
Firstly, do you have a company subject to UK corporation tax? If so:
- Does the company operate in a specialist or niche market?
- Does the company work in a regulated industry?
- Does the company employ skilled or technical staff (e.g. software developers, engineers or scientists)?
- Does the company subcontract technological, design, manufacturing or scientific work?
- Does the company develop its own software or outsource development of software?
- Does the company develop internal software or non-software processes that improve efficiencies?
- Does the company take on challenging projects that involve taking a leap into the unknown?
- Does the company solve difficult technological problems?
- Does the company own any patents?
If you can answer “yes” to any of the above, you may well be eligible to claim R&D tax relief!
At RDP Newmans LLP, we help companies of all sizes and across all sectors make R&D claims, alongside offering the more traditional accounting, tax and business advice services.
For more information on how we can help, please contact our Tax Director, Nikhil Oza, at firstname.lastname@example.org