R&D: does your project qualify for tax relief?
If you're investing money to research and develop new products and services, you may be able to claim tax relief. Josh Ruthven from our tax department looks at some of the criteria for financial support from the government.
What is Research and Development relief?
Research and Development (R&D) relief supports companies that work on innovative projects in science and technology. It can be claimed by a range of businesses looking for technological advancements in their field. It can even be claimed on unsuccessful projects.
What qualifies for R&D relief?
The qualifying work must be part of a specific project which makes an advance in science or technology. The project must relate to either the company's existing trade or one that you intend to start based on the results of the R&D.
In order to get the R&D relief, you need to explain how a project did the following:
- Looked for an advance in science and technology
- Had to overcome uncertainty
- Tried to overcome this uncertainty
- Could not be easily worked out by a professional in the field.
The project may research or develop a new process, product or service or improve an existing one.
What relief is available?
There are various different types of R&D relief, depending on the size of your company and whether the project has been subcontracted to you or not.
For small-and-medium-sized enterprises, the relief allows companies to:
- Deduct an extra 130% of their qualifying costs on R&D from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.
- Claim a tax credit if the company is loss making. This is worth up to 14.5% of the surrenderable loss.
What counts as qualifying expenditure?
- Employee costs – costs of employing staff actively carrying out R&D or on qualifying indirect activities.
- Materials/consumables – must be consumed in carrying out the R&D, but includes catalysts.
- Utilities – power/water/fuel used directly in carrying out R&D.
- Software – must be used directly in R&D.
- Sub-contracted activities – if these are made by an unconnected provider, you can make an election for connected party treatment.
What does not count as qualifying expenditure?
- The production and distribution of goods and services
- Capital expenditure
- The cost of land.
- The cost of patents and trademarks
- Rent or rates
How to claim R&D relief
You can make a claim for R&D relief up to two years after the end of the accounting period it relates to. The claim must be made in the company's tax return.
If you need any help understand R&D tax relief or completing your R&D tax relief claim, please contact Page Kirk on 0115 955 5500 or email enquiries@pagekirk.co.uk.