Research and Development Tax

What's available?

The UK is good at inventing! New ideas and innovation come easily to us it would seem. However, as an economy, the UK never seems to reap the benefit this should bring.

Governments of different colours have recognised this and provided tax reliefs to allow the UK to benefit from the contribution these ideas bring.

What is R&D tax relief?
R&D covers much more than you might first think.

We expect it to include research undertaken by scientists in all areas, but it is so much more than this, which means you might be ‘doing’ R&D without realising.

If you have developed a new process that substantially improves how you do what you do, or change what it is you do, you might be eligible for a claim. Your efforts to improve do not necessarily have to have been successful, it is the process of trying something new that is important.

What can I claim?
The claim changes depending on the size of your company. A small or medium-sized business can claim a ‘super-deduction’ leading to a saving of around 25% of the expenditure in addition to the normal tax relief.

A large company (and sometimes SMEs) can claim under the Research and Development Expenditure Credits (RDEC) scheme.

This allows companies to claim a cash credit against the cost of the R&D activity, generating a net benefit of around 10% on the qualifying expenditure.

What if my company is not earning profits, can I still claim?
The good news is – Yes! It is not uncommon for companies to generate losses as they explore new ideas. SMEs can claim a (valuable) cash payment from HMRC of 33.35% of qualifying expenditure. Under the RDEC scheme, similar claims for cash can be used.

Doing R&D puts a strain on my cash flow – can I bring forward any claim from HMRC?
Although HMRC will not accelerate any cash payment, funders are willing to advance credit supported by R&D claims. Speak to us if you think this might be helpful.

What costs qualify for R&D?
You can only claim for costs incurred undertaking eligible development work. This can include staffing costs, consumables, and certain sub-contractor costs.

When do I have to make my claim?
Within two/three years of the expenditure being incurred. If this sounds vague, it is, because it depends on the date of your accounting year-end. It is easier to ask us!

I have heard HMRC does not like R&D claims Is it worth it?
It is a sad reality that the R&D initiative has been abused, meaning companies have filed claims based on a loose definition of R&D. Generally, those advisors encouraging such actions are not there when HMRC probes into the claim, and this can be costly (link to investigations)

A recent report suggested that error and fraud in R&D accounted for £1.13bn of wrongful claims (equal to 179% of all claims) in 2020 and 2021. So HMRC is perhaps right to place more scrutiny on these claims.

What is B&S’ response?
Valid R&D claims should still be made. The UK still needs it innovators, and genuine claims encourage them.

Our team will review any potential claim in detail. This may feel a nuisance at the time, but it is important to us that our clients still benefit from this regime.