6 Oct 2021

Are you missing out on Research and Development tax relief?

RD Tax Web

Research and Development (R&D) tax relief is designed to give companies a relief on expenditure related to science or R&D. It tends to be used by manufacturing businesses or those in technology, but other organisations, such as those in food and drink, can also make use of this scheme.

Any type of innovation can qualify for R&D tax relief. This relates to both products and services, as well as certain processes. Essentially, if you’re trying to create something new, or produce it in a new way, you might be eligible.

It’s particularly important to be aware of this relief as many businesses will be eligible for the first time. If you’ve made changes to your company because of the pandemic, you may be able to claim.

What can I claim?
Firstly, it’s crucial to note that only limited companies can apply for R&D tax relief. There are two forms of relief, one for smaller businesses – defined as those with less than 500 employees and a turnover of no more than 100 million euros – and one for larger organisations.

All companies will need to demonstrate that they are seeking an advance of knowledge in science and technology. Only certain expenses can contribute to the claim – this includes staff costs, such as gross salaries, national insurance, pension contributions and some subcontractors. It may also include consumables, such as energy, necessary software, or even clinical trial volunteers.

The areas covered can be quite specific, but this eligibility is worth exploring as it could mean as much as a 130 per cent extra deduction for smaller companies. Importantly, both profit and loss-making companies can make a claim and the innovation does not need to be successful for businesses to claim relief.

The scheme for larger companies is not quite as generous, but organisations can generally expect to get back 10 per cent of their spend. We recommend seeking expert advice to help you make a successful claim.

New cap on PAYE and NIC for SMEs
In April 2021 a cap was introduced on the amount of PAYE and NIC a smaller company can claim. This is now capped at a maximum of £20,000, plus 20 per cent of PAYE and NIC for the given accounting period.

This move is an attempt to clampdown on perceived abuse and fraud and can affect your claim. If you have previously made use of this tax relief, make sure you are aware of the changes and how they might impact your business.

How does Covid support impact R&D tax relief?
If your business has made use of the Coronavirus Jobs Retention Scheme (CJRS – also known as furlough) or the Coronavirus Business Interruption Loan Scheme (CBILS) this may affect how much you can claim using the R&D tax relief.

Furlough payments, for example, cannot be included as staff costs. Using CJRS, CBILS or any other Covid support will not necessarily make you ineligible for R&D tax relief – make sure you seek advice so you are getting the maximum relief possible.

R&D tax relief isn’t widely used because many businesses don’t realise what it’s for. Make sure you develop a relationship with your accountant, in which they ask the right questions to determine what is best for your company. Don’t miss out on this generous tax relief scheme.

Stephanie Hurst