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The relief provides innovative businesses with a valuable tax incentive to help fund their Research & Development (R&D) activities.

R&D costs are incurred far more frequently than most businesses imagine and potential claims are often overlooked.

R&D is broadly based around innovation, there needs to be a project that seeks to achieve an advancement in science or technology. This means an advance in overall knowledge or capability in a field of science, not just an advancement in the company’s own knowledge. However, if a particular advancement has already been made but the details are not in the public domain, R&D may still take place.

Where innovation is taking place, the costs incurred by the company in relation to the innovation can be used to calculate the R&D claim. The claim can include costs for wages, subcontract costs, materials, software and capital expenditure, these are known as qualifying expenditure.

How much can you claim?

The relief is only available to companies. The rates for small or medium-sized enterprises (SMEs) are currently 230% for revenue expenses, or 100% for capital expenses. Therefore, for every £100 spent, £230 could potentially be claimed as R&D relief.

If the R&D relief of 230% results in a loss for the SME, the company may surrender that loss and claim a tax credit from HMRC of up to 14.5% of the loss. This provides the company with a tax refund from HMRC which would assist with the company’s cash flow. With the current pandemic, maintaining a good cashflow is crucial now more than ever.

From April 2021 it is proposed that the tax credit will become capped at three times a company’s total PAYE and NI bill. The government will consult on how the cap will be applied, to minimise any impact on genuine UK businesses.

Conditions for claiming the relief are as follows:

  • A company needs to incur the qualifying expenditure;
  • The expenditure is on R&D that is relevant to the company’s trade and is not capital in nature;
  • The expenditure is allowable as a deduction in computing the profit for the period; and
  • The company was not sub-contracted to carry out the R&D by another person 

If you think your company may have carried out R&D and are unsure if the project will qualify for the relief or not, contact your nearest Thomas Westcott office to ensure you are maximising the reliefs available to your business.