In this blog, David in the Chiene + Tait Entrepreneurial Tax Team highlights Research & Development Tax Relief and asks – are you missing out?
Scottish companies received over £165 million in Research & Development (R&D) tax credits last year. Yet a recent HMRC study showed a number of industries are still failing to claim R&D tax relief, when they could be eligible. I’ve produced an infographic on which sectors can claim the relief but traditionally don’t here.
There is a misconception that the relief is only available for technology start-ups or scientists in lab coats. This is just simply not the case, so is your company missing out?
What is Research & Development Tax Relief?
Research & Development tax relief is one of the most generous corporation tax relief currently available. The relief is a HMRC incentive designed to encourage innovation and increase spending on R&D activities, however, many companies incorrectly believe that they don’t qualify.
The relief can be extremely beneficial. Under the scheme companies can receive a tax credit or enhanced deductions to reduce their tax bill, that means £100k worth of qualifying expenditure can get you either:
- £230k worth of losses (worth £44k @ 19% tax rate) to utilise against future profits or
- £33.35k tax credit (cash in hand)
Essentially this means that if your company has tax to pay, you will pay less. If not, the Company will receive a tax credit.
What is R&D?
In the eyes of HMRC, R&D is a project that seeks an advance in science or technology through the resolution of scientific or technological uncertainties.
An advance in science or technology is an advance in the overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This can also include a project that seeks to make an appreciable improvement to an existing process. In layman’s terms, if you are seeking to create something new or improve upon an existing process, it will likely qualify for the relief.
Even if the advance in science or technology sought by the project is not achieved, R&D still takes place. This means that costs relating to aborting a project could also qualify for R&D.
Available for all – not just people in lab coats
With such a broad definition, thousands of companies are missing out. Below are just a few examples of projects that have qualified for relief in the last year:
- Creating a new recipe for a soft drink to adhere to the new sugar content regulations
- Improving upon an existing manufacturing process
- Creating a bespoke multi-functional piece of furniture
- Building a software infrastructure that’s more efficient than its competitors
- Developing an in-house Customer Relationship Management system
None of these are ’traditional’ R&D projects but all qualified for R&D tax relief. Some tips to keep in mind when considering if your project will qualify is to ask yourself the following:
- Has a technological advancement been made?
- Is the company working on something that has never before been attempted?
- Has the company tried to improve their existing products through technological change?
- Has the company found a more efficient way to work?
If your answer is yes to any of these then there will likely be scope for an R&D claim. Your next step should be to speak to an R&D specialist to determine the size of the claim and to ensure that you don’t suffer any pitfalls!
Chiene + Tait has a specialist R&D team that can help identify what can and cannot qualify for relief. In the past 24 months, we have successfully submitted over 80 R&D tax credit claims resulting in over £2.5 million being received by our clients, achieving a 100% success rate. If you would like to watch a webinar outlining these points, please visit the Chiene + Tait You Tube channel here.
If you would like a no obligation meeting to discuss R&D Tax Relief and whether you can apply, please contact me at firstname.lastname@example.org or call 0131 558 5800. Alternatively, I’ll be at the Investing Women Ambition & Growth Conference on 8th March and happy to chat further.
Kirsty Paton in our Entrepreneurial Tax Team has also written a blog about Understanding Investment. To read this article click here.