Tax relief as high as 230% for Research and Development

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Research and Development (R&D) relief is available to any business or enterprise seeking to achieve an advance in overall knowledge or capability in a field of science or technology. Eligible businesses can claim council tax deduction for qualifying expenditure. 

There are two types of R&D relief for companies which vary depending on the side of the company 

So what qualifies a company for R&D relief, what kind of relief is available, and does one apply?

Company Types and the Relief That They Qualify For

Small or Medium-sized Enterprises make up for over 99% of all businesses in the UK according to the Department for Business, Energy & Industrial Strategy’s Business Population Estimates of 2020.

SMEs are defined as businesses that have a headcount of under 250 employees, a turnover of less than €50 million, or a balance sheet total of less than €43 million. 

Companies with over 250 employees are defined as a Larger Company. 

R&D Tax Relief for SMEs

  • Tax relief as high as 230% on their qualifying R&D costs (listed above).
  • Loss-making companies can claim a tax credit worth up to 14.5% of surrenderable loss. 
  • SMEs who are making their first R&D claim can qualify for Advance Assurance.

SMEs may also apply for Research and Development Expenditure Credit  if they have been outsourced by a larger company. 

Like SMEs, Larger Companies can apply for tax relief, but will receive 13% of their R&D expenditure. 

Defining Research & Development

HM Revenue and Customs (HMRC) defines Research & Development (R&D) as seeking to achieve an advance in overall knowledge or capability in a field of science or technology.

In a business context, R&D is an activity that companies undertake in order to either develop new products and methods, or improve upon ones that already exist. 

Taking on this kind of activity is a risk to businesses as experimentation and innovation can appear to drain company resources for no guaranteed reward. 

HMRC regards innovation as being “at the heart of the UK’s strategy to boost productivity and economic growth” and are incentivising businesses to engage with R&D by offering tax relief on research and development costs. 

There are three main areas of R&D: basic research, applied research and experimental development.

  • Basic Research – Dedicated to acquiring knowledge and using it to build understanding and intelligence. Usually the first step in basic research is to gather information about the proposed project. Once data and information has been gathered, it can be used to anticipate a business or industry’s need and begin the next stage of R&D, to create a solution to the need.
  • Applied Research –  applied research is research conducted with a specific goal in mind, to see what actions can be taken to improve an industry’s existing condition by developing new products, policies, or operational processes.
  • Experimental Development – Is the act of drawing on existing knowledge gained from earlier research and practical experience and directing findings and discoveries into producing new materials, products and devices. 

R&D occurs across many different industries from construction and software development to life sciences and pharmaceuticals. The healthcare sector is one of four industries (software and Internet, auto and computing & electronics) that accounted for more than 97% of the top 20 enterprises spending money on R&D 2018 globally. 

Myriad Associates (The UK’s leading R&D tax experts) has found that in their two decades of working with pharmaceutical companies on their R&D tax credits claims that much of the work in clinical trials applies to R&D and therefore qualifies for R&D tax relief. 

For therapists, business related research and development  does not have to be developing a new drug to apply for a tax rebate.. Upgrading hardware, moving your practice from in person to digital, developing new strategies for providing therapy may also qualify. 

Are You Eligible?

If you can answer ‘yes’ to the following questions, you may be eligible to make a claim and should take a look at the government website in order to get a better idea of what could qualify your business for a R&D tax rebate.

  • Has your company attempted to develop any new products or processes?
  • Does your company incur costs in order to make improvements to your services and offerings?
  • Is your company aiming to improve upon any pre-existing processes within its sector?

If you believe your company is undertaking R&D, here are some of the costs you can make a claim for: 

  • Employee costs (This includes salaries, wages, class 1 National Insurance Contributions and pension fund contributions.)
  • Outsourced employees.
  • Software costs.
  • Utility and power costs.
  • Clinical trial subjects.

How To Apply

Your company may claim relief for up to two years after the end of the accounting period it relates to, and you may do this by entering your enhanced expenditure (the money directly attributable to R&D within your company) into the full Company Tax Return form (CT600), following this you can use this online service to support your claim. 

We recommend that you refer to an expert when considering this application, as the process is a long and nuanced one to undertake. 

Good luck, and join Private Practice Hub today!

Article written by Maisie Violet Wicks, BA Hons, columnist for Private Practice Hub. Please contact newsdesk@privatepracticehub.co.uk for any inquiries, comments or corrections. 

References: 

Assets.publishing.service.gov.uk. 2021. [online] Available at: <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/71260/bis-10-1393-rd-tax-purposes.pdf> [Accessed 4 June 2021].

Assets.publishing.service.gov.uk. 2021. [online] Available at: <https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/965501/Condoc_-_RD_review_.pdf> [Accessed 4 June 2021].

Hmrc.gov.uk. 2021. [online] Available at: <http://www.hmrc.gov.uk/gds/cird/attachments/rdsimpleguide.pdf> [Accessed 4 June 2021].

GOV.UK. 2021. Business population estimates for the UK and regions 2020: statistical release (HTML). [online] Available at: <https://www.gov.uk/government/statistics/business-population-estimates-2020/business-population-estimates-for-the-uk-and-regions-2020-statistical-release-html> [Accessed 4 June 2021].

GOV.UK. 2021. Claim Research and Development (R&D) expenditure credit. [online] Available at: <https://www.gov.uk/guidance/corporation-tax-research-and-development-tax-relief-for-large-companies> [Accessed 4 June 2021].

GOV.UK. 2021. Claiming Research and Development tax reliefs. [online] Available at: <https://www.gov.uk/guidance/corporation-tax-research-and-development-rd-relief> [Accessed 4 June 2021].

Dowsett, B., 2021. R&D Tax Credits: Eligible Projects And Costs. [online] Myriadassociates.com. Available at: <https://www.myriadassociates.com/news/2021/rd-tax-credits-eligible-projects-and-costs/> [Accessed 4 June 2021].

2021. The Global Innovation 1000 study. [online] Available at: <https://www.strategyand.pwc.com/gx/en/insights/innovation1000.html> [Accessed 4 June 2021].

Simplybusiness.co.uk. 2021. What is an SME? A simple guide. [online] Available at: <https://www.simplybusiness.co.uk/knowledge/articles/2021/05/what-is-an-sme/> [Accessed 4 June 2021].

ForrestBrown. 2021. What Is R&D? Research And Development In Business. [online] Available at: <https://forrestbrown.co.uk/news/what-is-r-and-d/> [Accessed 4 June 2021].

Investopedia. 2021. Why Research and Development (R&D) Matters. [online] Available at: <https://www.investopedia.com/terms/r/randd.asp> [Accessed 4 June 2021].