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Research and Development Tax Relief Claims – will your claim be capped?

Date posted: 1st Jul 2019

Research and development (R&D) tax relief has been around for nearly 20 years and is a very valuable relief for corporate taxpayers.

The relief is designed to reward companies developing new products or processes as well as making improvements to existing ones. Remarkably, even if failure was the end result, this does not prohibit a claim being made.

We have helped many businesses (particularly in engineering and manufacturing) to make R&D tax relief claims – some of whom simply believed it “too good to be true” or that the scheme only applied to companies with laboratories working on “wonder drugs”.

For profit making companies, the relief reduces the overall corporation tax payable.

For loss making companies, they can potentially ‘surrender’ some of their losses to HMRC in return for a tax ‘refund’ from HMRC. The latter has proven particularly valuable, as it has provided the loss-making company with much needed cash for re-investment.

Sadly, it appears that HMRC has encountered companies abusing the relief and will introduce a cap on the amount that a loss making company can claim back from HMRC. For accounting periods ending on or after 1 April 2020, the loss making company will only be able to claim a maximum refund of 3 x the PAYE/NIC bill. This will mean that there will be a cap on the losses that can be surrendered to HMRC. However, any losses not surrendered to HMRC will be able to be carried forward to utilise against future profits.

If you have any queries, on any aspect of R&D claims, please give us a call.


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