Research & Development Tax Relief – Encouraging Innovation through the Tax System
For over sixteen years companies have been able to derive significant cash benefits from the Government’s Research & Development (“R&D”) tax regime.
Below leading R&D Tax Specialist, Paul Arnold (Tax Partner at Bevan & Buckland), answers many of the key initial questions companies frequently ask regarding this regime:
1. What is the R&D tax regime all about?
The R&D tax regime provides companies with actual cash benefits which are directly linked to the level of qualifying expenditure incurred.
For example, SMEs may now derive an additional cash benefit equivalent to £26k per £100k of spend; or if they are loss making they may receive an actual cash receipt from HMRC of up to £33.35k per £100k of spend.
The cash benefit for companies claiming under the large company scheme is £8.8k in both scenarios i.e. since April 2013 companies without a corporation tax liability may now receive actual cash from the Government.
Companies have two years from the end of their accounting period to make, or amend, an R&D claim so there is often scope for companies to derive significant immediate cash benefits.
2. How is R&D defined?
For this purpose we need to consider the tax definition, which is often more far reaching than many people perceive.
R&D can generally be thought of as work undertaken to develop new, or improved, products or processes. For example, developing an automated process, or one that is quicker, more efficient or creates less waste etc. may potentially qualify.
3. What expenditure qualifies for this enhanced relief?
There are a range of qualifying categories of expense, including staffing costs, contracted out activities, EPWs (for instance, agency workers), consumables, computer software, utilities and payments to the subjects of clinical trials.
However, knowing that staffing costs qualify is the easy part. The complexity in preparing a claim involves, for example, identifying all employees involved within the R&D process and establishing the correct proportion of time they were engaged in qualifying activities.
4. What do you view to be the most important aspects in preparing an R&D claim?
Firstly, to ensure the claim is maximised. Preparing a standard R&D claim is far from complicated but unless a company takes proper, experienced advice they risk losing out on cash benefits to which they are entitled. The real added value lies in identifying all R&D projects undertaken (including work on processes), all qualifying activities, all employees involved and all other qualifying expenditure incurred.
Secondly, the documentation submitted to HMRC in support of a claim is vital. This helps HMRC to determine whether a company’s activities qualify and therefore a company needs to ensure that the R&D Report contains the required information.
Finally, as part of my consultations with a company, I believe it is important to develop an internal process to assist with future claims and to minimise the input required from their personnel.
Should you wish to speak to Paul he is contactable on firstname.lastname@example.org or 01792 41010 / 075575 03140.