What is Research and Development Tax Relief?
Research and Development (R&D) tax relief is an incentive designed by the UK government to reward companies for investing in innovation. Tax relief from R&D can be a valuable source of cash for companies to invest in accelerating their research and development of new or existing products and processes, or hiring new staff and investing in business growth.
Who can claim R&D Tax Relief?
Any company spending money on developing new products, processes or services – or enhancing existing ones – is eligible to claim R&D tax relief.
You do not have to be operating within a specific industry or sector to claim R&D tax relief and there is no size limit, so SMEs can make a claim in exactly the same way that large corporations do.
How much can I claim for R&D?
It depends on a number of complex factors, but typically if you run a large company (501+ staff and £100m+ turnover/£86m+ balance sheet), then you can expect to get approximately to 10% of your investment back.
For SMEs, it depends how profitable you are, but typically the following rules apply:
- Loss-making: up to 33% back
- Break-even: 15-33% back
- Profitable: up to 25% back
What income counts towards R&D tax relief?
- Employee salaries
- External contractor fees
- Subcontractor fees
- Materials used during the project which could not be sold on after the project
- Software licenses
View the full list of eligible expenses for R&D here.
How do you claim R&D Tax Relief?
- Contact a chartered tax adviser with experience in submitting R&D reports (such as Ascendis)
- Discuss your expenses relating to R&D activity with your tax adviser to enable them to compile a report on your behalf.
- Your tax adviser will then submit your report to HMRC and liaise with them to ensure you receive the amount you’re entitled to.
- You can choose to receive a cash payment, a Corporation Tax reduction, or a combination of both.
How often can you claim R&D Tax Relief?
If you’re claiming R&D tax relief for the first time, in most cases you will be able to claim tax relief for your last two completed accounting periods.