Tax Relief for Research and Development Projects
Research and development tax relief is available to support companies in the UK that work on innovative projects in science and technology. It is probable that many businesses are unaware of R&D tax relief, and this note provides a summary of the key points in order to draw attention to the potential help available to companies. R&D tax relief can be claimed by companies that endeavour to make advances in their specialism, and can also be claimed for unsuccessful projects. A company may seek to research and develop a new process, product or service, or improve ones that already exist.
R&D tax relief is not reserved for companies with laboratories full of white-coated scientists. It is open to all industries including Automation, Automotive, General Engineering & Manufacturing, Industry 4.0 & Connected Technologies. It is not possible to identify all activities that qualify for R&D tax relief but examples where relief can be claimed include software development, adaption of new or existing premises, adaption of a product to enter new markets, and improvements to quality control.
Projects must meet the government’s definition of an R&D project in order to be eligible to claim corporation tax relief. A project must attempt to make an advance in the realms of either science or technology. Projects seeking advances in a social science, economics or a theoretical field such as pure maths do not qualify. And the project must relate to a company’s trade, either an existing one or a trade that will be started if the R&D project is successful.
To obtain R&D tax relief it is necessary to demonstrate that four key issues have been addressed satisfactorily.
- An advance in science and technology must be sought. The objective of the project must be to create an advance in the overall field of science and technology, not just for the company and its business. The advance may relate to a process, product or service that has been developed by another company but is not publicly known or available.
- There must be uncertainty. The project must relate to an area of science or technology where the feasibility of delivering a successful outcome is in doubt. The advance sought must not already have been achieved by others.
- Work must have been undertaken to address the uncertainty. This can be demonstrated by a description of the successes and failures encountered during the project.
- It should not be possible for others to achieve the objective without recourse to an R&D project. This could be demonstrated by showing that attempts by others have failed or by confirmation by experts in the chosen field of research.
There are different types of R&D tax relief depending on the size of the company and whether or not the project has been subcontracted. Small and medium sized enterprises (SMEs) can claim R&D tax relief if the organisation has fewer than 500 staff and a turnover of less than €100m or a balance sheet total of less than €86m. It may be necessary to include linked companies and partnerships when establishing whether or not a company qualifies for SME R&D tax relief. R&D tax relief for SMEs allows companies to deduct an extra 130% of their qualifying costs from their annual profit, as well as the normal 100% deduction, to make a total 230% deduction. And SMEs can claim a tax credit if the company is loss-making, worth up to 14.5% of the loss that can be surrendered.
Research and development expenditure credit (RDEC) replaces the relief previously available under the large company scheme, and can be claimed by large companies working on R&D projects. It can also be claimed by SMEs that have been subcontracted by a large company to carry out R&D projects. RDEC is a tax credit for 11% of a company’s qualifying R&D expenditure up to 31 December 2017 and 12% from 1 January 2018.
Many companies specialise in advising and providing help in claiming R&D tax relief, and work with a range of businesses across the UK.
Further information can be obtained from the government website
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