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The basic tax benefit is that rather than getting the usual 19% tax relief on operating costs, activities classified as R&D get 44% tax relief. Where a company is loss making, the benefit can be taken as cash (usually paid within 28 days of submission), albeit at lower rates as below:
Type of expense | tax saving | OR cash payment by HMRC |
Non R&D spend of £100 (internal or sub-contracted cost) | £19 | Not available |
R&D spend of £100 internal cost | £44 | £33.4 |
Extra benefit of R&D scheme (for every £100 spent) | £25 | £33.4 |
R&D spend – £100 subcontracted | £36 | £21.7 |
Extra benefit of R&D scheme (for every £100 spent on sub-contracts) | £17 | £21.7 |
On first reading, the requirements to qualify for R&D, as listed below, may appear daunting. However, our team knows exactly what’s possible having submitted thousands of such claims.
“R&D takes place where a project attempts to achieve an advance in science or technology”. This can be tangible (new product or process) or intangible (new knowledge).
What is key is that there exists a level of difficulty or technical uncertainty over whether this new development will work and that finding a solution would not be readily deducible by a competent person.
Whether something will sell commercially (eg due to a lack of demand) is not relevant for R&D claims. Expenditure on failed technical trials would usually count whilst a financial appraisal of different investment options wouldn’t.
The sort of projects which qualify and might be relevant for an SME include:
The sort of projects which wouldn’t qualify include:
The types of expenditure to be included are usually:
Excluded costs are:
Special Conditions
R&D tax claims can go back upto 2 financial years. Thus a company with a financial year end of 31/5/2022 can still submit a claim for the period 1/6/2020 to 31/5/2021 up until 28/2/2023.
Any R&D tax credits payable will be reduced by any existing arrears on other tax payments. This will include any deferred liabilities whose agreed future payment dates form part of a Time To Pay (TTP) schedule previously agreed with HMRC. It will not however include any VAT or Interim Income Tax payments deferred by HMRC as part of the Coronavirus initiatives.
To the extent that potentially qualifying labour costs have been reimbursed by Covid grants, these cannot count towards an R&D grant claim.
All travel expenses included in R&D claims need to be paid by employees and then reimbursed by their companies[1].
With the standard rate of corporation due to increase from 19% to 25% in 2023/24, the benefits from R&D will also increase proportionally in the future.
[1] Otherwise they’re classified as company overheads and not reclaimable
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