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Everything You Need to Know About R&D Tax Relief

Gary Green
Gary Green
October 22, 2019

According to HMRC’s own published figures, R&D tax credits effectively reduce the cost of R&D by 28% for a large company and up to 44% for an SME (including their normal tax deductions).

This type of tax relief helps demonstrate that R&D can be an extremely valuable tool for driving innovation in companies of all sizes across the UK. The common conception that R&D claims can only be made by scientific researchers wearing lab coats could not be further from the truth.

Does My Company Qualify?

Many businesses do not realise that the projects they are undertaking may qualify for R&D tax credits allowing them to benefit from significant tax breaks.  We have also seen many cases where companies are claiming for R&D but are failing to maximise all qualifying expenditure.

If your company is seeking to develop or solve some scientific or technological uncertainty for the benefit of their ‘sector’ then you may qualify for R&D tax reliefs. This includes:

  • creating new processes, products or services within your business
  • making appreciable improvements to existing ones

HMRC recently listed scientists creating a new artificial bladder system for patients with urinary difficulties, or specialists developing new IT encryption and security techniques as two examples of qualifying R&D. This helps show how diverse the relief can be. In fact, almost any company in any industry may be eligible for relief.

Advance Assurance for R&D

Companies making their first R&D claim can qualify for Advance Assurance from HMRC. If Advance Assurance is granted, any R&D claims in the first 3 accounting periods will be accepted once they are in line with what was agreed. Obtaining Advance Assurance can give companies confidence to invest in R&D knowing they will benefit from the stated tax relief.

It should be noted that only certain costs are allowable for relief. This includes qualifying staff costs, subcontracted R&D, consumables, software, prototyping, and independent research costs. However, capital expenditure does not qualify and nor does expenditure on the production and distribution of goods and services.

All things considered, it is not that straightforward to make a claim for R&D but the tax benefits on offer make it worth persevering and we, of course, are here to help, contact us today.

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