R&D Answers: What is R&D for Tax Credit Purposes?
Date: 23rd July 2018
- R&D Tax Relief is available to UK Ltd companies, using science or technology as part of an innovative process/product.
- There are two variants of the scheme – large company (RDEC) and small company, with the boundary being approx. 500 employees in the company or group of companies. Small companies that have received subsidies or grant funding may need to use the large company scheme.
- The small companies scheme is more beneficial – paying the company upwards of 19% (typically 26%, maximum 33% depending on taxable profit/loss) of qualifying R&D cost. The large company scheme typically benefits by 8-9% of R&D cost.
- Claims may be made retrospectively, up to the 2nd anniversary of the end of company financial year.
- The essence of the scheme is the question "what is qualifying R&D?", and this requires discussion with a company on a case-by-case basis. The scheme applies equally across any industry using science and/or technology.
- Simply, a tax relief or R&D tax credit (available if you have a loss after the R&D enhancement is deducted from your trading P&L) is available for projects which seek to advance knowledge or capability in a field of science or technology, the project must involve the resolution of scientific or technological uncertainty. R&D begins when you start to try to resolve the scientific or technological uncertainty and ends when you either resolve the uncertainty or cease trying in the case of a failed project.
- Most accountants will have little experience of making an R&D claim, and even less of handling HMRC questions about an R&D claim.
- What accountants tend therefore to do is to point clients at the HMRC website and wish them good luck. A “read the manual” approach.
- Here is the manual: http://www.hmrc.gov.uk/manuals/cirdmanual/CIRD80000.htm
Risk, are you taking due care?
- The DIY approach is difficult. We know of company’s attempting this who have made costly mistakes and faced tough enquiries from HMRC. Claimants have a responsibility to take due care and misunderstanding a manual is not a defence.
- Elements of the manual are subjective (a matter of opinion/interpretation about words, some parts are outdated) but we have even seen accountants make accounting mistakes relating to entering the R&D information on a tax return to the harm of their clients.
- It is also important to understand that R&D relief is part of a tax return subject to self-assessment. HMRC process claims they don’t approve them. We know of a company claiming without specialist advice that made serious mistakes in 5 years’ worth of R&D claims, it took until the 6th year for HMRC to examine the claim, but the company had to correct the mistake for all 6 years.
Practical knowledge and experience is invaluable in putting together all aspects of a sound R&D claim. We have a significant track record of offering this successfully.
Contact us today to start your claim:
Tel: 01483 808301