This month the experts from Moore Thompson answer common questions on Research and Development tax relief.
What is R&D tax relief?
If your company carries out research and development (R&D) that seeks to advance science or technology, you could qualify for generous R&D relief on your corporation tax bill.
My company does do some R&D. How do I know if we can claim?
Broadly speaking, R&D tax relief is available to any company developing new processes or products that advance scientific or technological knowledge or capability by resolving an area of uncertainty. Even quite modest advances qualify, for example by making something cheaper, lighter, faster, more economical or more efficient.
Many businesses miss out on R&D tax relief because they don’t think they qualify or have not considered whether they might be eligible, so it’s always worth talking to an R&D specialist to get expert advice.
How much is R&D tax relief worth?
Small and medium-sized enterprises (SMEs) can claim R&D relief at a rate of 225 per cent. In other words, for each £100 of qualifying R&D costs, the income on which you pay corporation tax would be reduced by £125 on top of the £100 you have spent, with no minimum spend required. Even loss-making companies can benefit, by claiming a payable tax credit.
Larger companies can also claim R&D tax relief but the regime is slightly different. For both schemes, there is an upper limit of €7.5 million on the total amount of relief you can receive.
What sort of costs can I claim for?
Qualifying R&D expenditure includes items such as staff costs, subcontracted development work, computer software used directly in the R&D, raw materials and utilities (power, water and fuel).
What about Patent Box?
The Patent Box regime, which was introduced on April 1, 2013, reduces corporation tax payable on profits earned from patented inventions and certain other innovations to ten per cent.
It applies to worldwide profits from existing as well as new patents. Companies can benefit from the Patent Box however they use their patents and a product needs only one patented component for the Patent Box to apply to all its revenue.
What’s my next step?
The rules and language involved R&D and Patent Box tax relief are complex, so it makes sense to talk to experts in the field. They will be able to explain exactly what’s involved and prepare claims for you in a way that gives you the greatest chance of success.
They can also advise on issues like improving record keeping, so that you can keep track of all the activities involved in your R&D, and the costs, so that you can claim for all eligible expenditure.