Is your business eligible for R&D Tax Relief?

By JS (Jackson Stephen LLP)

03 Feb 2023

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At JS, our industry-focused technical approach enables us to identify potential R&D activity across the business to successfully make a claim for your company.

1. WHAT IS R&D TAX RELIEF? 

Research and Development (R&D) Tax Relief is one of the UK’s most GENEROUS Tax Reliefs. It is designed to encourage innovation and increase spending on R&D activities for companies operating in the UK. 

However, not all companies are aware that they may be undertaking qualifying R&D activities for tax purposes! 

R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology. The relief enables companies that incur expenditure in developing or improving products, processes, software, or services to receive a corporation tax deduction or cash payment from HMRC. 

The average R&D Tax benefit claim in the UK for SMEs is £57,330 and currently companies can claim R&D Tax Relief for accounting periods ended within the past two years (new advanced notification rules are to be applied from 1 April 2023).

2. WHO IS ELIGIBLE FOR R&D TAX RELIEF?

Any company (irrespective of the industry they are in) may be eligible for R&D Tax Relief. To benefit from R&D Tax incentives, you must:

  • Be a limited company in the UK that is subject to Corporation Tax 
  • Have carried out qualifying research and development activities 
  • Have incurred qualifying costs relating to these projects

3. WHAT QUALIFIES AS R&D ACTIVITIES?

R&D activities relate to projects that are focused on creating a level of improvement or advancement in a field of science or technology.

  • Developing new products, software, or services 
  • Changing or modifying existing products, processes, software or services

These activities must have an element of challenge where the answer or solution is not readily deducible. However, this does not have to be a new innovation to qualify and project success is not a requirement.

4. WHAT COSTS ARE ELIGIBLE FOR R&D TAX RELIEF? 

  • Qualifying costs would include:
  • Employee costs 
  • Externally provided workers 
  • Contracted out R&D 
  • Software Consumable items 
  • Payments to participants of a clinical trial 
  • Utility costs 
  • Data licence (for accounting periods starting on or after 1 April 2023) 
  • Cloud computing services (for accounting periods starting on or after 1 April 2023)

5. TYPES OF SCHEMES 

There are two R&D Tax Reliefs, Small or Medium-sized Enterprise (SME) and R&D Expenditure Credit (RDEC). 

As part of a wider reform, in the Autumn Statement on 17 November 2022, the Chancellor announced changes to be applied from 1 April 2023 to the available tax rates, resulting in: 

SME

  • The additional deduction being reduced from 130% to 86%, resulting in the benefit for SMEs paying Corporation Tax at 19% reducing to 16.3% and for SMEs paying Corporation Tax at 25% reducing to 21.5%

RDEC

  • The rate will increase from 13% to 20% 
  • With the increase in the Corporation Tax rate to 25%, the net benefit will increase from 10.53% to 15%

6. DEVELOPING YOUR R&D STRATEGY

  • During the R&D Tax claim process, our specialist team will analyse the expenditure across the business to carefully identify the qualifying R&D activities and expenditure, whilst developing the best methodology for your business to ensure the maximum benefit.

7. EVIDENCE TO SUPPORT YOUR CLAIM

HMRC state that the burden of proof lies with the claiming company, and therefore evidence to support your claim is key. As part of our service, we will work with you to help you develop your R&D strategy to capture costs and activities in ‘real time’ to support your claim.

If you would like to find out more, speak to one of the tax experts today by emailing us at [email protected]

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