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28 September 2016

Don't miss out on Research & Development relief

Research & Development (R&D) relief provides favourable tax relief for expenditure linked to research and development of new products or processes.

R&D relief has been around for many years now, and allows companies in the SME sector that are developing new products or processes to receive tax relief on 230% of their qualifying R&D expenditure. Companies claiming the relief will therefore pay less tax on their profits, or can surrender any losses attributable to R&D for a repayable tax credit which can give tech start-up companies a useful cash flow boost during the development phase.

Companies need to meet a number of criteria to receive R&D relief. First and foremost, there must be an advancement in science or technology. Secondly there must be some uncertainty over whether the project will be successful. In addition, there are further tests which look at whether the product or service is really breaking new ground.

So what costs can be included in an R&D relief claim? Costs directly associated with an R&D project can qualify, including staff costs, software, and materials/consumables used in the course of the project. Subcontracted labour costs can also be included but these costs are restricted to 65% to take out an arbitrary profit for the subcontractor.

Where the company receives grants towards its R&D costs then the R&D tax relief claim will be restricted, although it can claim an expenditure credit under the separate R&D large company scheme.

R&D relief is claimed on the Corporation Tax Return (CT600) but must be supported by a Technical Report which sets out the nature of the projects undertaken, the advancement being sought, the uncertainties, and the qualifying expenditure that the claim is based upon.

There is also a new Advance Assurance service which small companies can apply for at any point prior to making their first R&D relief claim. Once an application is submitted to HMRC under this service, an HMRC specialist is assigned to assist with the claim. If Advance Assurance is then granted for the R&D activities, HMRC will allow the company’s R&D claims for the first 3 accounting periods to be made without any further enquiries. With so many hoops to jump through to qualify for the relief, this service is well worth using for companies considering making their first R&D claim.

For more advice on this R&D relief please contact me.


Key Facts:

  1. R&D relief gives companies favourable tax relief for developing new products or processes
  2. To qualify there must be an advance in science or technology, and uncertainty of success
  3. SME’s get tax relief on 230% of qualifying R&D expenditure
  4. Qualifying expenditure includes staff costs, software, materials and (65% of) subcontract labour
  5. A new Advance Assurance service is recommended for companies submitting their first claim


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