Research and Development (R&D)

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

You can claim SME R&D relief if you’re a SME with:

  • less than 500 staff
  • a turnover of under 100 million euros or a balance sheet total under 86 million euros

You may need to include linked companies and partnerships when you work out if you’re a SME.

SME R&D relief allows companies to:

  • deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
  • claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss

Research and Development Expenditure Credit

This replaces the relief previously available under the large company scheme.

Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.

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).

Phone

CALL US 01325 349700

Lines open 8.30am-5.00pm Mon-Fri



Join our mailing list today for insights, events and webinars:

IT ALL FITS, TOGETHER.

Keep Informed: enter your email...

Our Clients Include: