Research and Development Tax Relief

Research and Development Tax Relief

Is your company working on a project that is seeking an advance in science or technology? Are you developing or improving a process? Is the advance relating to the current or future trade of your company? If so, your company could be eligible for a very generous tax relief which could either reduce your company’s tax bill or, for some small and medium enterprises (SMEs), provide a cash sum.

For accounting periods prior to 31 March 2023, SMEs can claim enhanced relief of 130% on qualifying expenditure. So, for every £1 spent, the company will receive an additional £1.30 deduction against their taxable profit. In cash terms this means for say £50,000 of qualifying expenditure, you could reduce your company’s tax bill by over £12,000.

If you have made a loss in this period, you can still claim the relief and there is an option to surrender your loss in exchange for a 14.5% tax repayment. Based on the figures above, this could give your company a cash injection of up to £16,675.

For claims from 1 April 2023, the enhanced relief has reduced to 86%, and the repayment amount has reduced to 10%, however it is still beneficial to make a claim.

For larger companies, there is a different scheme and the relief is worked out another way.

Many businesses think they will not qualify as they assume that what they are developing, in their normal course of business, is not ‘scientific enough’. That is not always the case and because of this, many businesses are missing out on this very valuable relief.

At David Allen, we discuss your company’s projects in detail and assess whether these are likely to qualify for R&D tax relief.  Once it is established there is a claim, we will work alongside you preparing the claim and calculating the qualifying expenditure, making sure that what is submitted to HMRC is as robust as possible, as well as maximising the relief available to your company.

The tax relief claim needs to be included in the company’s Corporation Tax return for the year in which the expenditure was incurred. The deadline for making a claim is two years after the year end in which the expenditure relates.

For further information on R&D tax relief please give us a call on 01228 711888.