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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. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.

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).

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