R&D TAX RELIEF

R&D TAX RELIEF

Could your company qualify?

 

Overview

This is a potential extra Corporation Tax benefit for companies undertaking qualifying research and development activity. This is not just aimed at companies specialising in R&D, any company could potentially qualify on a project-by-project basis.

Key requirements

The company must be doing something that advances knowledge and capability generally in an area of science or technology. Broadly, this means the creation of new knowledge for the world, not just the company.

For a claim to be worthwhile it needs to have a reasonable cost base, for example, employee payroll costs and/or external subcontractors.

It is important to have a good supporting narrative explaining the aim of the R&D activity, setting out details of the uncertainties faced and how they were overcome.

What costs qualify for R&D relief?

• The employment costs of R&D staff (salary/employers NIC/pensions) x the amount (i.e. %) of their time spent on qualifying R&D. Typically, this is the bulk of any claim.

• Externally provided workers – typically these are agency staff on the payroll of the relevant agency.

• 65% of subcontracted R&D costs.

• Consumables – basically things that are used up in the R&D process.

• Qualifying directly attributable overheads/utilities.

• Software licences needed for R&D work.

Things you should know:

• The small companies’ scheme, which allows claims of up to 33 pence in the pound, is open to companies with a turnover of 100 million euros or a balance sheet total under 86 million euros.

• For larger companies and those excluded from the small company scheme, the Research & Development Expenditure Credit (RDEC) scheme is available, but this only offers relief of up to 8p in the pound).

• From 1st April 2023, the cost of overseas contractors will be excluded from the scheme.

• Companies with accounting periods beginning on or after 1st April 2023, who are making their first R&D claim, they must pre-notify HMRC of their intention to make a claim no later than 6 months before the financial year end. Companies already making claims will not be affected.

• Also from April 2023, all R & D claims will have to be submitted digitally.

• If you are receiving R & D grant funding, this often disqualifies you from claiming tax relief, irrespective of the size of the business. It is therefore important to get advice before accepting any offer of funding as it may be less valuable than a rebate or claim under the scheme.

FINANCIAL DIRECTOR PENS

HOW CAN WE HELP?

You will need a robust claim to get HMRC to agree. We can help to guide you on the criteria for the SME scheme or for larger companies the RDEC scheme, as applicable. You will need to provide the technical detail, while we will submit the claim, and will defend it should HMRC enquire.

If you think your company could be missing out on this extra tax relief, get in touch for a free first consultation with our tax team here, or call 01225 325580.