Don't let imagery put you off R&D

In April this year, the Government introduced new legislation which means companies can now get double the amount of tax relief on money invested in research and development (R&D).

Effectively it means that for every pound a company spends on R&D, it can get two pounds deducted from its taxable profit, saving the company significant sums of money, but also allowing the company to grow by developing new products and services.

From a tax point of view, there’s never been a better time to undertake R&D projects but, from our experience, many business owners are put off by the “test tube imagery” associated with R&D.

They are unsure exactly what the term means and exactly what type of projects qualify. The truth is it doesn’t just apply to scientific businesses or really hi-tech companies, it can be something as simple as adapting an existing product to work in different way.

For tax purposes, R&D is defined as the resolution of a technical or scientific uncertainty or the application of existing technical or scientific knowledge in a new and unusual manner.

Each R&D project has to be assessed individually, but several projects can attract relief at the same time. Companies can now receive a deduction of 200 per cent of qualifying expenditure and further legislation is expected to be introduced in 2012 to increase the total R&D deduction to 225 per cent and abolishing the £10,000 minimum expenditure threshold for R&D relief.

While R&D isn’t relevant to all businesses, the Government is clearly hoping the increased tax reliefs will encourage businesses to get spending and get innovating, creating new jobs and boosting the economy.

David Bennett
Moore and Smalley Chartered Accountants