R&D tax relief

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Research & Development (R&D) tax relief is a measure that was introduced over two decades ago to incentivise innovation in the UK. This corporation tax relief reduces a liability or in certain circumstances results in a payable tax credit, either way increasing cash to spend in the business, and therefore also benefitting the economy as a whole.

The definition of what constitutes R&D is wide ranging but is often misunderstood, and as a result, the relief may be over- or under-claimed, or sometimes missed entirely. In general terms, if your engineers or technical team spend time improving products or processes or developing solutions to technical problems, performing feasibility assessments or trying to find solutions through iterative processes, or trial and error, this could potentially qualify.

If your team encounters failures, technical challenges or issues in the course of their work, or the completion of a project takes longer than expected, this could also indicate the presence of qualifying activities.

There are two different schemes depending on the size of a business: 

SME

• This scheme gives an additional tax deduction of 130% of the qualifying costs (i.e. a total of 230%). This will provide an additional tax saving of 24.75p for every £1 spent (130 at the tax rate of 19%). Loss making companies can surrender up to the entire 230% for cash at a rate of 14.5%, thereby receiving up to 33.35p of cash for every £1 spent.
• For costs incurred from 1 April 2023, the additional deduction will reduce to 86%, providing an additional tax saving of 21.5p for every £1 spent (86 at the tax rate of 25%). Loss making companies can surrender up to the entire 186% for cash at a rate of 10%, thereby receiving up to 18.6p of cash for every £1 spent.

Large

• A larger business is defined as one where the entire worldwide group has over 500 employees and either turnover in excess of €100m or gross assets over €86m, and they are eligible for the Research and Development Expenditure Credit (RDEC).
• The RDEC is a 13% credit that appears within operating profit, thus increasing EBITDA. This amount is then subject to tax at 19%, and so the net benefit is 10.53p for every £1 spent.
• The RDEC will increase to 20% for expenditure after to 1 April 2023 (with a net benefit of 15%).

R&D claims are commonly made by businesses in almost every sector. Please see below industry specific documents [Currently being updated for the changes in rates - please contact us as below for copies of these when available] describing typical qualifying activities for companies involved in construction, drinks, food, healthcare and pharmaceuticals, manufacturing, retail, software and sports. 

With almost 20 years experience of assisting businesses with R&D claims, with benefits of over £25m during that time, Tom Byng can work with you on all aspects of the claim, including identification of R&D activities, cost analysis, calculating the benefit, filing the claim and managing communication with HMRC. 

Our process is bespoke to every client, and in addition to managing the entire process, we can also provide:

• Advice on specific elements 
• Feasibility studies
• Training courses on R&D tax incentives
• Review of prior year claims
• Advice on processes to streamline future claims
• Assistance with HMRC enquiries