Research & Development Tax Relief

Research & Development Tax Relief

For many years there has been the misconception that R&D claims can only be made for cutting edge and brand new products. This has led to thousands of potential claim opportunities being missed.

R&D claims are not limited to those businesses that work in the pharmaceutical industries; in fact, many manufacturing, engineering and other companies have the potential to make significant claims. One of the main criteria for a successful R&D tax credit claim looks at whether something has been significantly improved. This can be as simple as making something lighter, faster or simply more efficient.

In fact, R&D is not limited to creating or improving products, making your manufacturing process more efficient also falls within the definition of R&D. The key to a successful claim is being able to show that you have been attempting to make some form of advance or overcome technical problems.

As a result, a wide range of industries can claim R&D credits, we have seen successful claims for companies as diverse as food & drink producers, building contractors, software designers and slipper manufacturers. In fact the largest single claimants of R&D tax relief are banks who spend significant amounts developing in-house software.

Potential Businesses

As mentioned the legislation does not restrict R&D tax relief to high-tech companies and as a result companies in a wide range of industries may be able to benefit: eg:

  • Pharmaceuticals
  • Software & IT
  • Food & Drink
  • Manufacturing
  • Electronics & Electricals
  • Chemicals & Glues
  • Engineering
  • Waste Recycling Plants
  • Foundries
  • Video Games Development

Benefit of making a claim

With effect from 1 April 2012, small or medium-sized enterprises (SME) are entitled to claim a tax deduction equivalent to 225% of their qualifying expenditure in the year. For example, if you spend £10,000 on research and development, you are treated as if you had spent £22,500 when calculating your taxable profits.

From 1 April 2015 the tax deduction available to SME's is now 230%.

The net result of this is a reduction in the tax payable for a profitable company now and in future.

But R&D is not just for profitable companies a loss making company who is undertaking R&D may surrender losses and claim a tax refund equal to 11% of the surrendered loss (this equates to just under 25% of the actual expenditure).  With effect from 1 April 2015 the tax refund is now 14.5% of the surrendered loss.

Claims need to be made within 2 years of the company's year end. This means you can potentially claim for all qualifying expenditure incurred in the past 36 months.

R&D Claims

Whilst the R&D process can be complex and the claim looks at a variety of areas where costs are incurred, Jackson Stephen can guide you through the process and do the bulk of the analysis for you.

Items of expenditure that potentially qualify are:

  • Staff costs for those involved with the R&D project
  • Consumables (items used in the R&D process)
  • Software costs
  • Light, heat and power costs (a proportion of these can be claimed)
  • Subcontractor costs (a proportion of the costs could qualify)

If you have any questions or would like to discuss the potential to make a claim on a no obligation basis, please contact our Tax Partners, Steve Crompton or Chris Barrington on the details below:

Steve Crompton
Partner - Head of Tax
direct dial: 01942 292541

Chris Barrington
Tax Partner
direct dial: 01942 292505