Research and Development Relief gives additional tax relief to companies for expenditure incurred on R&D projects that seek to achieve an advance in science or technology. For an SME company which incurs losses when conducting R&D activity, a tax credit can be claimed by way of a cash sum paid by HMRC.
This scheme has higher rates of relief from 1 April 2015. The tax relief on allowable R&D costs is 230%. This means that for every £100 of qualifying costs, your company could reduce your corporation tax by an additional £130 on top of the £100 spent.
If your company has an allowable trading loss, this can be increased by 130% of the qualifying R&D costs – so that’s £130 for each £100 spent. This loss can be carried forward in the normal way, but only if you choose not to convert it to tax credits.
If your company makes a loss, you can choose to receive R&D tax credits instead of carrying forward a loss as a cash sum paid to you by HMRC.
Under the rules, you can claim for ‘attempting to resolve scientific or technological uncertainties’. For example:
- Creating new products, processes or services.
- Changing an existing product, process or service.
The project doesn’t have to be successful in order to qualify for the tax relief.
If your project meets the applicable criteria, you can claim for the following expenses:
- Staffing costs, including salaries, employer’s NIC and pension contributions.
- Hiring subcontractors and freelancers for the project.
- Materials and consumables including heat, light and power that are ‘used up or transformed by the R&D process’.
- Some types of software.
It has long been the case that smaller businesses are not taking full advantage of this relief so, if you think your business might qualify, please talk to us to see how we can help.