What is R&D Tax Relief?
Research and Development Tax Relief was introduced by the Government to provide an incentive for UK companies to undertake innovation. It was considered that the UK was lagging behind the rest of the world so a tax initiative was introduced to stimulate innovation and development and also aimed at encouraging inward technology investment into the UK from foreign corporations.
The tax initiative works by providing an enhanced additional tax deduction for the costs incurred in undertaking qualifying research and development.
Frequently Asked Questions
What Qualifies as R&D?
The detailed guidance is given in the Business Innovation and Skills Guidelines (formerly DTI Guidelines 2004. However, if you undertake the following, you may qualify:
– New Products, New Processes (internal or external), New Services
– Enhanced products, processes, services with improved features, durability, reliability, efficiency, capability, resilience etc.
– Bespoke software programs to integrate multiple systems and improve existing systems
Overall, if you are incurring costs to achieve a competitive advantage or comply with new regulations by improving products, processes services or increasing margins by improving productivity and efficiency, you should be undertaking qualifying research and development.
What can I claim through the R&D Tax Relief Scheme?
The main cost will be the time spent by directors and employees on the qualifying research. For example, an employee and a director may spend 2 days a working week on R&D for a year. This results in 40% of their salary, NIC and pensions contributions being eligible for the enhanced additional deduction.
Other costs include paying third parties (for research, testing, etc.), materials and tooling (for say prototypes, test models etc.), software used directly to test the R&D and a proportion of overheads (heat, light, water).
It is possible to also include some ancillary activities such as security, finance, maintenance, market research, training, leasing and training.
How do I calculate my R&D Claim?
For example, if all the costs (salary, materials, ancillary) total £50,000 per the accounts. The enhanced additional tax deduction is 130%.
Therefore another £65,000 (130% of £50,000) is deducted from the taxable profit in the tax computations submitted to
This results in a tax saving of £12,350 (19% company tax on £65,000).
Additional tax deduction results in
This deduction does not affect the accounting profit so has no impact on profit reporting to third parties such as customers, suppliers and lenders.
Are then any costs when making an R&D claim?
We usually operate on a no win no fee basis at 20% of the tax savings. However, we will assess every claim on a case by case basis to ensure our fees do not outweigh your tax savings.
Who can claim R&D Tax Relief?
Only limited companies can make a claim for R&D tax relief.
There is also scope for small companies undertaking R&D for large companies (more than 500 employees) or small companies receiving
How do you make an R&D Tax Claim?
If you think you are incurring time and costs to achieve a competitive advantage by improving products, processes, services mechanically or technologically, there are 3 simple steps to make a claim
Step 1 – give us a call and we will arrange a meeting about your development work and assess whether a claim is feasible under the guidelines.
Step 2 – if feasible, we will confirm costings and prepare a report for your approval with a revised tax computation claiming the tax relief.
Step 3 – on your approval we will submit the computations and chase HMRC for any tax savings
We will then deal with any enquiries from HMRC to secure a successful claim for tax relief
Based on previous claims, your input should be no more than 7 hours overall for steps 1 to 3.
Is there a time limit when making an R&D claim?
The time limit for a claim is 2 years from the end of the accounting period e.g. the deadline for the year ended 31 December 2017 is 31 December 2019.
For more information, take a look at these helpful documents
Examples of successful R&D claims with The R&D Co.
R&D Assessment Sheet
Identify if you are eligible to submit a claim.
What qualifies as Research & Development?
“We thought that R&D tax relief only applied to new scientific products but when Howard Worth explained that it applied to our integrated supply, delivery, tracking system for our dash cams to provide assurance to our clients, we were delighted with the refund and on-going tax savings. The process was straightforward with only an overview of the claim required from ourselves following the initial meeting.”
“In previous year’s we have used R&D “specialists” to prepare our annual claim. This year we decided to use our Accountants, Howard Worth. Not only was their advice more accurate, but their fee structure much more transparent and reasonable. Tim, Khurshid and the team turned the claim around quickly and I’m looking forward to a refund much earlier than I expected. I would not hesitate in recommending Howard Worth to look at any R&D claim.”
Global Technology company