Research & Development

What Qualifies as R&D?

The detailed guidance is given in the Business Innovation and Skills Guidelines (formerly DTI Guidelines 2004). However, if you undertake the following, you may qualify:

• New Products, New Processes (internal or external), New Services

• Enhanced products, processes, services with improved features, durability, reliability, efficiency, capability, resilience etc.

• Bespoke software programs to integrate multiple systems and improve existing systems

Overall, if you are incurring costs to achieve a competitive advantage or comply with new regulations by improving products, processes services or increasing margins by improving productivity and efficiency, you should be undertaking qualifying research and development.

Who can claim R&D Tax Relief?

Only limited companies can make a claim for R&D tax relief.

There is also scope for small companies undertaking R&D for large companies (more than 500 employees) or small companies receiving third party funding to make a claim for R&D tax relief known as RDEC (research and development expenditure credit).

What can I claim through the R&D Tax Relief Scheme?

The main cost will be the time spent by directors and employees on the qualifying research. For example, an employee and a director may spend 2 days a working week on R&D for a year. This results in 40% of their salary, NIC and pensions contributions being eligible for the enhanced additional deduction.

Other costs include paying third parties (for research, testing, etc.), materials and tooling (for say prototypes, test models etc.), software used directly to test the R&D and a proportion of overheads (heat, light, water).

It is possible to also include some ancillary activities such as security, finance, maintenance, market research, training, leasing and training.

How do you make an R&D Tax Claim?

If you think you are incurring time and costs to achieve a competitive advantage by improving products, processes, services mechanically or technologically, there are 3 simple steps to make a claim

Step 1 – give us a call and we will arrange a meeting about your development work and assess whether a claim is feasible under the guidelines.

Step 2 – if feasible, we will confirm costings and prepare a report for your approval with a revised tax computation claiming the tax relief.

Step 3 – on your approval we will submit the computations and chase HMRC for any tax savings

We will then deal with any enquiries from HMRC to secure a successful claim for tax relief

Based on previous claims, your input should be no more than 7 hours overall for steps 1 to 3.

How do I calculate my R&D Claim?

For example, if all the costs (salary, materials, ancillary) total £50,000 per accounts. The enhanced additional tax deduction is 130%.

Therefore another £65,000 (130% of £50,000) is deducted from the taxable profit in the tax computations submitted to HM Revenue & Customs.

This results in a tax saving of £12,350 (19% company tax on £65,000).

Additional tax deduction results in a repayment of overpaid company tax or a cash cheque from HMRC of 14.5% of the additional deduction. In this case £9,425 (14.5% of £65,000).

This deduction does not affect the accounting profit so has no impact on profit reporting to third parties such as customers, suppliers and lenders.

Is there a time limit when making an R&D claim?

The time limit for a claim is 2 years from the end of the accounting period e.g. the deadline for the year ended 31 December 2017 is 31 December 2019.

Are there any costs when making an R&D claim?

We usually operate on a no win no fee basis at 20% of the tax savings. However, we will assess every claim on a case by case basis to ensure our fees do not outweigh your tax savings.