There are two schemes for claiming relief, depending on the size of the company or organisation:
The Small or Medium-sized Enterprise (SME) Scheme.
The Research and Development Expenditure Credit (RDEC) scheme for large companies.
In general, a project qualifies as R&D if:
- It seeks to achieve an advance in science or technology.
- The research is relevant to the business.
- The business is of a trading nature as distinct from someone working in a profession or vocation.
HMRC’s guidelines state that the activity must contribute directly to seeking the advance in science or technology or must be a qualifying indirect activity.
The R&D must be related to the companies’ trade or intended trade.
Any qualifying costs for claiming R&D tax relief must be of a revenue nature. However, capital costs relating to R&D work may qualify for R&D capital allowances using a separate procedure.
Qualifying revenue costs include:
- Staff costs (including direct and externally provided) – staff actively engaged in carrying out?R&D.
- Materials consumed or transformed in the R&D process.
- Utilities – power, water, fuel used directly in carrying out?R&D.
- Software – computer software used directly in the?R&D.
HMRC will generally accept any reasonable method for calculating amounts that need to be apportioned between relating to R&D and non-R&D expenditure.
In order to make a claim, businesses need to perform a detailed review of all their activities and isolate all expenditure relating to R&D projects.
Costs that cannot be included:
- Capital expenditure, including the cost of land; although other reliefs may be available.
- Expenditure on the production and distribution of goods.
- Payments for the use and creation of patents and trademarks.
Finally, if you have received a grant towards a project that is notifiable under State Aid you can’t get relief under the R&D scheme. Your grant provider should be able to provide this information.