Research & Development (R&D) tax relief was implemented by the government in 2000 to reward innovation. For every £1 spent on R&D tax relief £4 is generated by UK business; increasing growth and from the government’s perspective, increasing tax revenues. If you did not know that R&D tax relief existed you are not alone. Businesses who could benefit from the relief do not know it is meant for THEM. And if they did they probably would not know how to claim for it. Also, if they were given a true insight into the vagaries of the process for claiming the relief they would probably run for the hills.
There are 2 aspects of R&D tax relief:
- Qualifying R&D costs give rise to a 230% tax deduction for profit-making businesses: the standard 100% deduction for business costs and then an extra 130% on top.
- Loss-making businesses can claim either a tax credit against future Corporation Tax or opt for a cash lump sum.
R&D tax relief will manifest itself in real value straight to your bottom line; so why aren’t you already benefitting from it? Many business owners and leaders believe R&D is the sole preserve of those who develop cutting-edge technological projects or involve themselves in the scientific, chemical or medical industries. This is not true; you do not need people in white coats to do R&D.
R&D activity comes in many forms. It is the everyday business of problem-solving and business improvement. If you have been involved in the any of the following activities you may have a claim:
- Making a bespoke or customised product.
- Developing a new product yourself or being involved in its introduction.
- Making improvements to processes with an intention to improve the environment.
- Carrying out design work, prototyping & developing models, new patterns or tooling.
- Developing or improving your IT systems and structures.
- Changing products in response to changing legislative requirements.
- Regular problem-solving driven by a customer’s needs or on behalf of a customer.
- Undertaking failed or partially successful projects.
You may think that your accountant should be able to guide you through the claims process but in many cases, this is not a reasonable expectation. It is a deeply technical process and requires a high level of understanding of R&D from a business and operational perspective, and what HMRC want to see and hear in a claim.
Keith Trubshaw is a Partner at Rufus & George – Tax with responsibility for R&D Tax Relief. He combines a legal and accounting education with over 40 years in business as a leader, owner and consultant. If you would like to arrange a no-obligation consultation with Keith, email email@example.com or call 07807 305317.