Better understand Research and Development Tax Relief for your business
The Research and Development (R&D) Tax Relief scheme is a government tax break designed to encourage innovation by incentivising companies to invest in R&D, enabling them to reduce their tax bill or claim payable credits on a proportion of their R&D expenditure.
While R&D tax relief is available to any company undertaking a project which seeks to achieve an advancement in science or technology, many business owners do not know they can apply. R&D can occur when developing new or improved products, processes, services, or systems. Only 19 % of companies classify their businesses as innovation active, despite the UK government actively encouraging technical innovation in business.
What’s it worth?
Currently, SMEs engaged in qualifying R&D are eligible for an enhanced Corporation deduction equal to 230 % of the R&D expenditure. This equates to a tax benefit of around 25p for every £1 spent on R&D.
For loss-making SMEs incurring R&D expenditure in the year, it is possible to surrender some of the loss to HMRC for a tax repayment of around 33p for every £1 spent on R&D.
Large companies carrying out R&D receive a tax credit of around 13p for every £1 spent on R&D. This R&D Expenditure Credit is payable to the company net of tax and can be surrendered to other group companies.
These rates can be applied to your previous two financial years. Changes will be implemented for expenditure after 1 April 2023 to bring the tax benefit for SMEs and large companies closer together, with a benefit of around 15p - 20p for every £1 spent on R&D.
Expenditure includes:
- Staff costs of those working on a project
- Subcontractor and freelancer costs (65 % allowable)
- Consumable costs and certain other overhead expenses
- Software licences
What criteria does your business need to meet to qualify for R&D?
Eligibility is not limited to activities taking place in laboratories and science-based research centres. If your business is finding new ways of solving problems in a technical area those projects may qualify. R&D Tax Credits can often be claimed across wider areas and various enterprises could qualify for significant tax reductions and gain a cash flow boost. Loss-making companies can even claim back tax they haven’t paid in the first place.
Examples of where your business might qualify for R&D tax relief include:
- You are designing or developing products improved by technology.
Beavis Morgan managed to secure £129,000 in R&D tax credits back for a construction company adopting modern methods of construction and off-site manufacturing to develop new techniques for housing that was more sustainable and faster to build.
- Your business has conducted R&D to improve current systems to maximise efficiency and outcome.
Beavis Morgan were approached by a fire and security company which had developed an innovative electronic signalling system. They were able to get £24,000 back for them from the government R&D tax relief scheme.
- Your business is actively involved in building new software or systems to provide better services.
Beavis Morgan were able to claim £75,000 back for an architect who had developed enhancements to their BIM software.
- You have developed a specialised solution to solve a certain client problem.
A property consultancy developed a project collaboration tool for property developers, construction and installation companies. Beavis Morgan were able to claim £68,000 of government money back on their behalf.
Maximise the benefits
The R&D tax reliefs can be extremely beneficial for those engaged in qualifying R&D, and our business partner Beavis Morgan can help your practice maximise the benefits of the reliefs by:
- Ascertaining whether you are eligible to qualify
- Identifying and capturing expenditure on qualifying activities
- Preparing a robust report for submission to HMRC
- Being prepared for and managing an audit by HMRC
For more information on how we can help you, contact RIBA Business team on business@riba.org
