R&D tax credit: Could you benefit?

The importance placed on R&D in boosting the nation’s economy was once again underlined by Rishi Sunak in his Autumn Budget.

Declaring that the government’s ambition is to make the UK “a science and technology superpower”, the chancellor announced changes to the R&D tax credit system.

The qualifying expenditure will be expanded to include data and cloud costs. Other changes will refocus support towards innovation in the UK rather than overseas.

Figures just published by HMRC reveal a strong increase in the number of businesses claiming R&D tax credit, highlighting its value to businesses.

The estimated number of claims for the year ending March 2020 was 85,900, an increase of 16 per cent from the previous year. And that rise was driven by claims from SMEs, according to the figures.

The estimated total amount of R&D tax relief support claimed over the period was £7.4bn, up 19 per cent from the previous year.

The information and communication, manufacturing, and professional, scientific and technical sectors continued to have the greatest volume of claims.

However, the relief is open to businesses from any industry and while there is a perception that the credits are just for young companies at the start of their development, that is certainly NOT the case.

And it is also worth stressing that your business may be entitled to a valuable R&D tax credit even if it doesn’t make a taxable profit.

The SME R&D relief currently available provides an enhanced deduction for tax purposes of an additional 130 per cent of qualifying revenue expenditure on qualifying R&D, in addition to the 100 per cent deduction already available for revenue expenditure under the normal tax rules.

Where the SME is loss making, alternatively, the SME may claim a tax credit up to 14.5 per cent of the surrenderable loss.

So, who is eligible for R&D tax relief under the present system? HMRC has set out some clear rules and guidelines.

It says your company can only claim for R&D tax relief if a “project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” – and not simply an “advance in its own state of knowledge or capability”.

The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.

And if your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.

It is not enough to say that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services if they don’t incorporate any advance in science or technology.

You can’t claim R&D tax relief under the SME Scheme if you’ve been subcontracted to do the work on behalf of somebody else.

It is also worth pointing out that your project doesn’t have to be a success to qualify for the relief. The fact that it failed can be used to show that its work was genuinely pioneering.

However, if your company receives a subsidy or grant for an R&D project, it may affect how much tax relief you can claim.

Gaining this support can be an important part of a business’ decision whether to make an investment that can see very real benefits for its future.

The requirements of the scheme are broad. It can include creating new products, processes or services or changing or modifying existing ones.

• To discuss if your business may be eligible R&D tax relief contact me on 01772 430000