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The government wants to encourage companies to invest in research and development, so it offers additional tax reliefs on the expenditure.

When people think of R&D they tend to think of scientists wearing white coats in the laboratory. However, many companies are undertaking their own R&D without even realising it.

If your business operates in the field of science and technology, you may want to consider whether you can benefit from the generous tax reliefs available.

  • R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
  • The activities which directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are R&D.

The additional deductions available in relation to qualifying R&D are 130% of the actual costs incurred.

Who is eligible?

A small or medium sized company which carries on R&D, with R&D broadly defined as a project seeking to achieve an advance in science or technology.

Small or medium sized companies for this purpose are companies which have fewer than 500 employees and turnover of less than EUR 86m.

There are different rules for large companies.

What are the reliefs

A small or medium sized company incurring qualifying Research and Development (R&D) expenditure will be able to claim an additional deduction equal to 130% of the costs incurred in calculating its taxable total profits

What can be claimed for?

Commonly claimed items of expenditure include:

  • Staff costs (wages)
  • Software costs
  • Payments to subjects of clinical trials
  • Subcontracted R&D costs
  • Externally provided workers

You cannot claim for capital costs – so items of equipment and machinery do not form part of an R&D claim.

The process of claiming

The claim can be made on the company’s tax return. 

You can submit an R&D claim up to two years after the end of the period in which the expenditure was incurred. For example, if the company has a 30 June 2021 year end, the company has until 30 June 2023 to submit a tax return with a claim to R&D tax relief.

Example

John & Jane Ltd spends £50,000 on qualifying R&D in its accounting year ended 31 March 2021.

The total deduction for R&D will be £50,000 x 230% = £115,000

If the £50,000 has already been deducted in arriving at the company’s accounting profit this means that an additional £65,000 should be put through as an adjustment for tax purposes!

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