What are Research and Development Allowances?

Research and Development Allowances (R&D) are a tax incentive allowing companies to deduct a certain percentage of expenditure from their taxable income resulting in a corporation tax saving.

You can claim on costs associated with specific projects that make and advancement in an area of science or technology related to your company’s trade.

What costs can I claim on?

You can claim on costs that were directly incurred by the project on:

  • staff costs such as salaries, wages, class 1 national insurance contributions and pension fund; contributions
  • subcontractor costs; and
  • consumable items such as materials and utilities.

What are the requirements to make an R&D claim?

There are four requirements that must be satisfied before HMRC will accept an R&D claim. You must explain how a project:

  • looked for an advance in science and technology;
  • had to overcome uncertainty;
  • tried to overcome uncertainty; and
  • could not be easily worked out by a professional in the field.

This advancement cannot be something that already exists and that you have built upon.

What are the types of R&D claims available?

R&D claims are classified into two categories, one for SMEs and one for large companies called the R&D expenditure credit (RDEC).

SMEs

  • Must have less than 500 staff members or a turnover of under €100,000,000 to qualify, including any linked companies and partnerships.
  • If you qualify you will be entitled to deduct 130% of your qualifying costs from your yearly profit, as well as the normal deduction of 100% to make a combined 230% deduction.
  • If your company is operating at a loss you will be able to claim a tax credit worth 14.5% of the surrenderable loss.

Large Companies, RDEC

  • Companies with more than 500 staff members or a turnover of more than €100,000,000
  • This can also be claimed by an SME who have been subcontracted to do R&D work by a large company
  • Initially, this credit was 11% of your qualifying expenditure up to the 31st of December 2017, but increased to:
    • 12% from 1st January 2018 to 31st March 2020
    • 13% from the 1st of April 2020

How do I claim R&D relief?

  • You are able to claim R&D relief up to two years after you have completed the project.
  • The duration of the project begins working to solve the uncertainty and ends when you solve it or finish working on it. If you are claiming RDEC and this period falls within different credit percentages, your claim will be apportioned to reflect this.
  • You must be able to work out the costs directly attributable to the project in order to claim them on your tax returns.

R&D claims are a highly complex area of tax relief that requires intricate knowledge of the legislation and HMRC guidelines. CPA Tax has extensive experience in successfully claiming this form of tax relief.

If you think your company may be eligible to claim R&D relief get in touch with us today:

jess@cpatax.co.uk
0207 725 9946