Does your company do creative or innovative work in the fields
of science or technology? You may be eligible to claim additional
tax relief, meaning lower tax payments or a cash receipt from HMRC
- even where no tax has been paid.
Some companies may not realise they are carrying out research
and development (R&D), as their accountants or finance
directors may only be looking at 'wages and salaries' in
the accounts, or perceive that the complex rules get in the
R&D is not restricted to the oft-cited life sciences, but
covers companies in virtually every industry that are undertaking
some form of innovation; this includes innovation in products and
services, as well as in their support functions.
Industries for which we have successfully made claims include
construction, advertising, education, telecoms, food and drink,
financial services and gambling, as well as the more obvious
manufacturing, energy, defence and life sciences industries. The
software, internet and communications sectors are good examples of
where R&D takes place in the supporting as well as core
What is R&D?
R&D is defined by seeking advances in science or technology
through the resolution of scientific or technological uncertainty.
Such projects include the improvement of existing products,
processes or services, as well as devising new ones.
Only publicly available knowledge need be assumed, so that
R&D may be undertaken even where similar development has been
undertaken by a competitor, for example, but retained as a trade
There is, inevitably, considerable ambiguity in many cases, so
each case must be looked at on its own merits.
What is it worth?
As the corporation tax rates for small companies are now aligned
to the large company rate (currently 20%), the relief for SME
companies who are profitable is around 26% of cost (based on an
uplift for SMEs to 130%) still a very beneficial relief.
Where an SME is lossmaking, the relief can give rise to cash
repayments of over 33.3% of the cost for expenditure incurred from
1 April 2015, even where no tax has ever been paid. This is of
considerable help to the start-up in need of cash to fund the
To qualify for the SME reliefs, the company, together with
appropriate proportions of any 'linked' or
'partner' enterprises, must have:
fewer than 500 employees; and
turnover not exceeding €100m;
balance sheet total not exceeding
There are complex transitional rules for companies which become
or cease to be SMEs.
The definitions of linked or partner enterprises and the
proportions to be used are also complex, and may include, for
example, companies owning 25% of the company or being 25% owned by
Qualifying R&D expenditure must be revenue expenditure
employee and agency costs
software and consumables
subcontracted expenditure (for
certain indirect expenditure.
These are all subject to complex definitions, and HMRC has its
own views on certain aspects.
In the case of agency costs, or subcontracted R&D, only 65%
of the cost qualifies for this uplift unless certain elections are
To the extent R&D is funded or subsidised by an EU-notified
state aid, the project will not qualify at all for the SME scheme
but may qualify under the scheme for large companies (as for
R&D subcontracted to them, or project-certified R&D). If
only partly funded and not with EU state aid, the unfunded part may
Revenue expenditure capitalised in the accounts is not
necessarily excluded, and if capitalised into tangible fixed assets
might only qualify on a depreciated basis, if at all. Capital
expenditure may qualify for R&D capital allowances. Advice
should be sought in this difficult area.
There are numerous other rules, including the restriction that
an R&D tax credit may only be claimed or paid where the company
remains a going concern.
Finally, claims have to be made within two years of the end of
an accounting period, and HMRC gives no leeway here.
HMRC has special R&D units which consider claims in detail,
therefore it is important to prepare and present them
We have taken great care to ensure the accuracy of this
publication. However, the publication is written in general terms
and you are strongly recommended to seek specific advice before
taking any action based on the information it contains. No
responsibility can be taken for any loss arising from action taken
or refrained from on the basis of this publication.
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