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Research and Development (R & D) Tax Relief

R & D is something that has gained attention in the media in recent years and was highlighted by the Chancellor in the Spring Statement as an area that will be focused on in the lead up to 2025.  If you trade through a limited company and are constantly looking at new processes to improve your business or have developed a new product that you intend to bring to market, then an R & D claim could be for you.

So what is R & D?

Broadly speaking, R & D is a tax relief for companies to promote innovation and development in business. It applies to a wide range of businesses and industries; a common misconception is that it only applies to people developing products in science labs.  Although R & D does indeed apply to products being developed in science labs, it also applies to agriculture, industry, engineering, the list goes on.

For example:

• Do you farm through a limited company and are constantly looking at ways to improve your milk quality and yield?
• Do you have a building firm and are looking at ways you dispose of your waste more environmentally friendly?
• Do you have an IT firm and have developed a new software that overcomes the frustrations of the other options that are already on the market?

The relief must be claimed on a Corporation Tax return alongside a report that goes into the detail of the projects undertaken, the advances the projects are trying to make, the uncertainties you have overcome, and the relating costs associated with it.

There are two schemes made available by HMRC that a claim could be made through, and the appropriate scheme will be recommended to you depending on the size of your business and the projects that you have been developing.

What will it mean for me?

A claim for R & D looks at the day-to-day costs of your business.  For every £1 you spend on developing a new process or product, HMRC will let you claim a tax deduction for an additional £1.30 as long as you meet the relevant criteria.

It may be that you have looked into a development yourself, you have spent money on purchases, or you may have instructed an employee to begin the process of the R & D.  You may also be entitled to make a claim if you are using third party experts to outsource the work, although there are certain restrictions to this.

In real money terms, if you were to invest £10,000 in R & D, you would be able to claim an additional £13,000 as an expense on your Corporation Tax return.

If your company is profit making and ordinarily pays Corporation Tax, you would have a reduction in liabilities of approximately £2,400 using the above example.

If your company is loss making and does not ordinarily pay Corporation Tax, you may be entitled to a refund depending on your circumstances and a repayment cap.  Using the same example above, you could have a refund of approximately £1,885.

Why choose David Allen?

If we are already working with you and providing accountancy services, this is a great additional service that we can provide.  We already have details of your business expenditure and have a background of your business too.  We will use this information along with your input to help create a robust report to support any R & D work completed and make the process as streamlined and straightforward as possible from start to finish.

If we do not provide accountancy services to you, then we would work alongside your existing accountant to obtain the correct information.

No claim will be made to HMRC on your behalf without your input at every step of the way.  Your knowledge will be required from the initial discussion to the collation of the relevant costs, to the approval of the draft and final reports.

I do not trade through a company, what does it mean for me?

Although an R & D claim is for corporate structures only, if you are a sole trader or a partner in a partnership and are on the fence about incorporation, the availability of claiming R & D may mean that you need to reevaluate.

This all sounds great, who do I need to contact?

If you would like to discuss this further, please contact Hannah Reay in our Dalston office on 01228 711888.