If your company invests in Research and Development (R&D) and qualifies for corporation tax, it may be able to claim a sizable portion of the qualifying R&D expenditure as R&D Relief.
Recent changes to the R&D Relief scheme
From 1st April 2015, the tax relief on qualifying R&D cost will increase from 225% to 230%.
The government has been trying to encourage investments in R&D in the Small and Medium Enterprises (SMEs) sector and its efforts have been focused on making it easier for SMEs to avail of tax credits.
In keeping with this, in the Autumn statement of 2014, the Chancellor stated that HMRC will introduce a formal process of advance assurance for small companies claiming R&D Relief for the first time. These companies will be able to approach the R&D units in advance and discuss the claim.
Many companies still hold misconceptions about what sort of R&D qualifies for the R&D Relief, and often think that qualifying research needs to be on a new product. This is not true.
R&D Relief is also extended to work where:
- The company is doing research to improve an existing product or process. Or to manufacture the same product but in an improved way.
- The company is doing research to develop a product or a process that already exists but where information to handle technical issues is not easily accessible to them.
Factors to be kept in mind by companies when applying for R&D Relief
- They cannot be in receipt of a notified state aid in respect of the project.
- Their expenditure must not be subsidized.
- They can only claim for revenue expenditure such as premises cost and wages. Any capital expenditure cannot be included, though there is a separate capital allowance for R&D.
- They cannot be contractors who have been contracted to carry out the research.
- They must be a going concern.
- €7.5m is the maximum that can be claimed for any single research project.