Research and Development can be basically defined for tax relief purposes as:
Seeking an advance in science OR technology
Activities undertaken which aim to achieve the advance by resolving scientific OR technological uncertainties
If a particular advance has been made but details are not publicly available, if for example it is a trade secret, then work to achieve the advance can still be an advance that qualifies as R&D for tax purposes.
It could therefore be the case that two rival companies have developed virtually the same product independently of each other but both qualify for R&D tax relief.
Frequently asked questions about Research and Development (R&D)
What is R&D (Research and Development)?
Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. A wide range of companies can claim it if they’re working to research or develop an advance in their field — even if the project isn’t successful.
You may be able to claim Corporation Tax relief if your project meets the definition of R&D.
Can sole traders and partnerships claim R&D (Research and Development)?
No – Only companies liable for Corporation Tax can claim through the scheme.
How far back can I claim R&D (Research and Development) tax relief?
You can claim for the last two accounting periods of the company.
What type of projects count as R&D (Research and Development)?
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science – like economics – or 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 the R&D.
To get R&D relief you need to explain how a project:
looked for an advance in science and technology
had to overcome uncertainty
tried to overcome this uncertainty
could not be easily worked out by a professional in the field
Your project may research or develop a new process, product or service or improve on an existing one.
What are the different types of R&D (Research and Development) relief?
There are different types of R&D relief, depending on the size of your company and if the project has been subcontracted to you or not.
Small and medium sized enterprises (SME) R&D Relief
It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
The RDEC is a tax credit, it was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to:
12% from 1 January 2018 to 31 March 2020
13% from 1 April 2020
What if I’ve received a grant for the same project?
Grants or subsidies may result in a company having to claim either partly or entirely through the Research and Development Expenditure Credits (RDEC) scheme instead of the SME scheme.
What if I’ve made a loss?
You may be able to surrender the loss for a tax refund paid back to you in cash.
What if the project has failed?
Failure does not preclude an R & D claim as long as the company was trying to make an advancement in knowledge.
What costs qualify for inclusion in a claim?
The most common costs are employee costs, subcontractors and consumables used up in the R & D process.
How do I make a claim?
A report is required explaining the projects you have worked on and why you think they fit the criteria to be classed as R & D.
You add the costs involved and then make the claim on your corporation tax return (CT600).
