Posted by James Pearson on 31 Mar 2011

Research and Development Tax Credit

What is the Research and Development Tax Credit worth?

From April 2011 a company incurring qualifying Research and Development tax credits (R&D) expenditure will be able to claim 200% of costs incurred. This means a company can receive £2 of tax credit or relief for every £1 spent. The result is that a further 100% of eligible expenditure will be deducted to arrive at an adjusted taxable profit, resulting in an increase of at least 21% in working capital for a company. Furthermore any unrelieved loss to the company could be surrendered for a cash rebate at 14% of the claim.

Who Conducts R&D?

There is no specific industry or sector that is prohibited from claiming.
Qualifying R&D expenditure is not limited to the R&D department

Who Can Benefit?

  • Does the company employ scientific, technical, software or design related people?
  • Is the company or a specific department either developing new or improved processes, products or material or gain knowledge in these areas (regardless of success or failure)?
  • Will the company be funding (accept commercial risk of) the R&D, including the use of third party developers?

If the answer could be yes to any of the above you may be Eligible for R&D tax relief

R&D Rules and Criteria for SME:

Less than 500 employees
Turnover = <€100m and or balance sheet total = <€86m
Research & Development Tax Relief – Eligible Expenditure:

  • Staff and management outlay.
  • Employing external providers or Subcontract costs.
  • Consumables and Materials consumed or transformed.
  • Use of IT (Software ) or other forms of technology.
  • Clinical Trials Volunteers.

Definition of R&D for Tax Purposes:

Advance sought in science or technology, by new or appreciably improved or addition of knowledge to industry. (SSAP13/IAS38 & guidelines issued in March 2004):

So how do you interpret the definition to claim what could rightfully be yours?

This is where experience and expertise in tax planning and R&D methods is vital. The use of existing processes or material does not prohibit R&D, what is decisive is the intention and activities involved in achieving, or not achieving the goal and being able to map this to the legislation.

If you would like more information about how we could help your company or if you would like to arrange an initial consultation with no obligation please email James Pearson on james.pearson@taxinnovations.com or alternatively phone 01962 856 990.