There’s always a good deal of mixed press surrounding tax planning and, often, people aren’t sure what they’re entitled to in terms of claiming tax relief for their business activities.
One very positive form of relief that is sometimes missed is Research and Development (R&D).
R&D relief benefits companies that work on innovative projects in science and technology. Just as it says on the tin, if you’re researching or developing a scientific or technological advance in your field, this is a tax benefit you can claim. Believe it or not, you can even claim it for a project that’s been unsuccessful. And, as an added bonus, you may be able to claim Corporation Tax relief too!
So what counts as R&D?
- Firstly, to qualify for R&D relief, your work must be part of a specific project to make an advance in science or technology. You can’t claim this tax benefit for something that’s classed as a social science, like economics, or anything in a theoretical field, such as pure maths.
- The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of your research.
- Your project may research or develop a new process, product or service – or it can improve on an existing one.
- Your project must aim to create an advance in the overall field, not just for your business. So it can’t be a case of you using an existing technology for the first time in your specific sector.
- The process, product or service you’re developing can still be counted as an advance if it’s been developed by another company but isn’t publicly known about or available to buy.
Information you’ll need to prove your claim is valid
To get R&D relief you’ll need to explain the following factors.
- How your development work started because you looked for an advance in science and technology in your field and couldn’t find what you wanted.
- You found uncertainty and overcame or tried to overcome this doubt by researching or developing something that wasn’t known to be scientifically or technology feasible at the time you made or discovered it. The R&D needed research, testing and analysis for you to develop it.
- The problem or development couldn’t be easily worked out by a professional in the field. You can illustrate this by showing that any other attempts by people to find a solution had failed.
- You’ll be expected to describe the successes and any failures you’ve had during the project.
Types of R&D relief
There are different types of R&D relief depending on the size of your company and whether or not the project has been subcontracted to you.
Large companies
You can claim an R&D Expenditure Credit (RDEC) for working on R&D projects. This is a tax credit for 11% of your qualifying R&D expenditure up to 31 December 2017 and 12% from 1 January 2018. Don’t worry – well hel you work out the correct amount
Small and medium sized enterprises (SME) R&D Relief
You can claim this if you’re an SME with:
- fewer than 500 staff; and
- a turnover of under €100m or a balance sheet total under €86m.
You can:
- deduct an extra 130% of your qualifying costs from your yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.
- claim a tax credit if the company is making a loss, worth up to 14.5% of the “surrenderable loss.”
- Possibly claim RDEC if you’ve been subcontracted to do R&D work by a large company.
Here at Nordens we’re completely clued up on all the relevant features of this tax credit to make sure you benefit from it fully. We’ll support you throughout your claim and ensure your finances for the project are allocated in the most tax-efficient way. Call us to find out more on 020 8530 0720, or email paula.w@nordens.co.uk.
