What is R&D relief and does my business qualify?
For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.
Your business must be a limited company in the UK that is subject to Corporation Tax, have carried out qualifying research and development activities and have spent money on these projects.
How much is it worth?
The R&D tax credits available to SMEs have been substantially increased over recent years to 230% from 1 April 2015, with the cash back available to loss making SMEs now 33.35% of the qualifying expenditure.
When you deduct your enhanced expenditure from your taxable profits, or add it to your loss, it will result in a Corporation Tax reduction if you are profit-making, a cash credit if you are loss-making, or a combination of the two.
SMEs undertaking qualifying R&D for large companies may claim under the RDEC Scheme (R&D expenditure credit) where they may be able to claim a payable tax credit of 11%.
Which projects qualify?
Work that advances overall knowledge or capability in a field of science or technology, and projects and activities that help resolve scientific or technological uncertainties, may qualify for R&D relief.
You will likely be eligible for relief. Even if your R&D project was unsuccessful, you may still be eligible: the key is that the project seeks to achieve a technological or scientific advance.
What costs qualify?
Direct and externally provided staff, subcontracted R&D, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief.
Capital expenditure does not qualify under this scheme, nor does expenditure on the production and distribution of goods and services.
SMEs that subcontract qualifying R&D activities can claim tax relief on 65% of the payment to the subcontractor.
Grants or subsidies that your company receives for your R&D project may make a difference to your R&D claim.
How to claim R&D tax relief
You can claim R&D relief by entering the total qualifying expenditure on the full Company Tax Return form, CT600.
If your company has been undertaking qualifying R&D and has not yet claimed R&D relief, you may make a backdated claim within the anniversary of your filing date — generally two years after the end of the accounting period.