Research and Development (“R&D”) provides Corporation Tax relief for qualifying companies incurring expenditure on qualifying projects.
Historically, R&D claims have been largely unchallenged by HMRC, but we should warn you that in recent years this area of taxation has become open to HMRC challenge (usually successfully) and so is quickly becoming a treacherous area.
This is in part down to HMRC’s belief that many claims that are submitted do not undergo rigorous enough challenge by the advisors submitting them (note the hundreds of “boutique” firms that have popped up to prepare and file such claims).
So be aware that if you approach us to help you prepare your R&D claim, we will question and challenge the information that you provide us with.
As part of the claim process we will prepare a robust report to be approved by you and then submitted to HMRC alongside the relevant Corporation Tax return.
Please note however that even with the rigor and care that goes into our report and claim preparation, this still does not provide immunity to HMRC challenge. We know, it sounds like it should be a slam dunk, but HMRC are interpreting the legislation in “new” ways all the time, so its effectively an ever moving target. Unfortunately, that is their prerogative.
In the event of successful HMRC challenge, any tax relief received, or credit paid will need to be repaid to HMRC, which could have a catastrophic impact on cashflow. So you need to be absolutely certain that you are happy to proceed.
If you’re still reading this… you obviously think you have a valid claim, so here are the things you need to know:
There are 2 different types of R&D tax relief, depending on the size of your company and if the project has been subcontracted to you or not.
Small and medium-sized enterprise (SME) R&D tax relief
You can claim SME R&D tax relief if you’re a SME with both of the following:
- less than 500 staff
- a turnover of under 100 million euros or a balance sheet total under 86 million euros
You will need to include partner and linked enterprises when you work out if you’re a SME.
This claim will enable you to deduct an additional 86% of qualifying costs (so a total deduction of 186%). If this creates a loss, the company can surrender the loss for a repayable credit of 10% of the surrenderable loss.
R&D expenditure credit (RDEC)
Large companies can claim expenditure credit for working on R&D projects.
It can also be claimed by SMEs who have been subcontracted to do R&D work by a large company. Note that recently HMRC are interpreting subcontracted work to include instances where the work is being carried out under a contract for a specific customer. We believe that this is not how the legislation was intended, however it is a good example of how HMRC are using their own interpretations to put R&D out of reach for many taxpayers.
Companies qualifying under this regime can claim expenditure credits for working on qualifying R&D projects. The applicable expenditure credit rate from 1 April 2023 is 20%.
If you want to consider whether an R&D claim is right for you, firstly, strap yourself in… it has the potential to be a bumpy ride, and then when you’re sure you’re ready to proceed, please get in touch to start your journey with us.
We've got you!
If you want to consider whether an R&D claim is right for you, firstly, strap yourself in… it has the potential to be a bumpy ride, and then when you’re sure you’re ready to proceed, please get in touch to start your journey with us.