Enhanced R&D claims have been available to companies for over 15 years and while the rates of relief have evolved the basic premise of the relief has not changed. The nature of qualifying costs have though changed with time.
Recently HMRC have finally updated their guidance notes to remind businesses of the extended definition of employee costs that were issued in October 2016 and highlighted the errors in their previous guidance notes issued in October 2014. The timing of this amendment is of importance is companies only have until 31 January 2018 to look at historic claims, where they relied on the previous guidance, and to make any amendment. Unless they are within their normal enquiry window.
As a reminder R&D relief is available to all companies who undertake qualifying R&D activities. For small and medium sized companies the relief offers an uplift of up to 130% on qualifying costs and potentially an immediately repayable tax credit.
Given the announcement has not been widely published it is worth businesses not only looking at historic claims but also businesses in general looking at their activities to ensure they are maximising the reliefs available to them.
So what activities qualify for the enhanced R&D relief?
• A project qualifies were it seeks to achieve an appreciable improvement to an existing process, material, device product or service through scientific or technological changes.
• The project should be looking to achieve an advance in overall knowledge or capability and not just a company’s own state of knowledge or capability alone.
• The advance can include the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.
• There is no requirement that the project is successful, therefore even abandoned projects will potentially qualify. Nor does the company have to own any intellectual property arising from the development.
What costs qualify?
In general it is any revenue costs incurred undertaking qualifying development work. These include:
• Staffing costs, including NIC and pensions, and also reimbursed expenses to employees, where such costs are attributable to the relevant R&D project.
• Consumable items e.g. power and water costs, software used for R&D and consumable materials (consumable costs incurred creating prototypes that are ultimately sold though would not qualify).
• Payments to sub-contractors and externally provided workers.
We can help you identify whether a claim can be made, quantify the level of any claim and ensure a claim has been maximised. If you would like to discuss a claim please contact a member of the tax team.
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