Despite being on the statute books for over a decade, there are still companies not claiming the hugely valuable research and development (R&D) tax relief. This is often because they do not realise they are carrying out R&D, and nor do their accountants who see only 'wages and salaries' in the accounts.
What is R&D?
Projects which seek to achieve an advance in science or technology through the resolution of scientific or technological uncertainty can qualify as R&D for tax relief. R&D may be undertaken even where similar development has been undertaken by a competitor but retained as a trade secret. There is inevitably considerable ambiguity in many cases, so each case must be looked at on its own merits.
R&D is not restricted to the oft-cited life sciences, but covers companies in virtually every industry which are undertaking some form of innovation; this will include innovation in products and services, as well as in their support functions.
Industries for which we have successfully made claims include construction, advertising, telecoms, financial services, and gambling as well as the more obvious manufacturing, energy, defence and life sciences industries. Software, internet and communications are good examples where R&D takes place in supporting functions in such industries as well as industries in their own right.
What's it worth?
Where a company is taxpaying, the extra relief can be worth up to 31% of cost. Alternatively, where a company is loss making, the relief can give rise to tax repayments of as much as 25% of the cost, even where no corporation tax has ever been paid. This is of considerable assistance to start-up's in need of cash to fund their R&D.
To qualify for these levels of R&D relief, the company must be an SME; this requires fewer than 500 employees, and either turnover not exceeding €100m, or balance sheet total not exceeding €86m.
Qualifying expenditure
Qualifying R&D expenditure includes employee and agency costs, software and consumables and subcontracted expenditure. For periods ending after 31 March 2012 there is no minimum spend.
Making claims
There are numerous other rules and claims have to be made within two years of the end of an accounting period. HMRC gives no leeway here. It also has special R&D units who consider claims in detail, so it pays to prepare them carefully.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.