Research & Development Tax Relief

R&D Tax Credits

Since 2000, companies have been able to derive significant cash benefits from the UK Government’s Research & Development (R&D) tax regime, which provides companies with actual cash benefits which are directly linked to the level of qualifying expenditure incurred.  For example, Small to Medium-sized Enterprises (SMEs) may now derive an additional cash benefit equivalent to £26k per £100k of spend; or if they are loss making, they may receive an actual cash receipt from HMRC of up to £33.35k per £100k of spend. The cash benefit for companies claiming under the large company scheme is £8.8k in both scenarios i.e. since April 2013 companies without a corporation tax liability may now receive actual cash from the Government. 

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How do R&D Tax Credits work?

Companies have two years from the end of their accounting period to make, or amend, an R&D claim so there is often scope for companies to derive significant immediate cash benefits. R&D can generally be thought of as work undertaken to develop new, or improved, products or processes. For example, developing an automated process, or one that is quicker, more efficient or creates less waste etc. may potentially qualify. 

There are a range of qualifying categories of expense, including staffing costs, contracted out activities, EPWs (for instance, agency workers), consumables, computer software, utilities and payments to the subjects of clinical trials. However, knowing that staffing costs qualify is the easy part. The complexity in preparing a claim involves, for example, identifying all employees involved within the R&D process and establishing the correct proportion of time they were engaged in qualifying activities. 

Preparing a standard R&D claim is far from complicated, but unless a company takes proper, experienced advice they risk losing out on cash benefits to which they are entitled. The real added value lies in identifying all R&D projects undertaken (including work on processes), all qualifying activities, all employees involved, and all other qualifying expenditure incurred. The documentation submitted to HMRC in support of a claim is vital. This helps HMRC to determine whether a company’s activities qualify and therefore a company needs to ensure that the R&D Report contains the required information.