Posted by James Pearson on 18 Oct 2013

Research and Development

HMRC has recently released statistics showing that the scope of research and development claims submitted to HMRC has grown both in terms of the amount claimed and the variety of business making those claims.

There has long been a popular perception that research and development relief was only available for traditional “white coat” research, and significant tax relief went unclaimed. This now appears to be changing as recent analysis shows that sectors such as” wholesale and retail, hotels and restaurants” are beginning to take note of the significant tax savings available and claims for R & D relief outside of traditional sectors are growing.

This illustrates how wide the definition of research and development is for these purposes. To qualify for relief a company must intend to make an advance in science or technology. There are two key elements to this requirement that need to be present if relief is to be claimed.

Firstly, the claim must be based on science or technology. This is not as exclusive a requirement as it may at first appear since there are not many businesses that do not make use of technology in one form or another.

Secondly, the activities must be an advance, meaning that the research or development must not be into something that would have been obvious to a competent professional in the relevant field. This does not necessarily mean that pre-existing solutions can not be used as part of qualifying research and development. For example, if the problem that is being considered has two already established solutions but it is not clear which of the two solutions would be most beneficial, the research needed to identify which option to use would be considered to be an advance.

Whatever sector your company operates in, it will be worth considering whether research and development relief could apply to any activities. The relief is generous, allowing up to 225% of qualifying expenditure incurred to be set against profits for corporation tax purposes. In some cases, the relief can be immediately beneficial even to a loss making company as losses created by R & D relief can be exchanged for a cash payment.

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See also…

Research & Development

Research & Development (R&D) Relief Changes

Finance Act 2018 Enacted

Brexit Tax Implications and Advice

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