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R&D tax relief doesn’t have to be complicated

Your limited company might be able to apply for research and development (R&D) tax relief to save money on your tax bill, which you can then pump back into your business.

Too many companies don’t realise this fact, or assume they’re not eligible.

So, who exactly can claim R&D tax relief? How does it work? And how can you be sure your claim will stand true?

What is R&D tax relief?

R&D tax relief is given to a limited company that carries out a research project that makes an advancement in science or technology. The project must relate to the company’s existing trade – or one it intends on using the project to start – so you can’t claim relief on any old work or project.

Significantly, your science or technology project must make a new advancement – you must solve a problem no one has been able to solve before you, or be the first to discover a new method that simplifies existing systems.

We understand how daunting that sounds, so when you’re designing a project for R&D tax purposes, think about how you can:

  • develop a new system
  • customise or adapt systems
  • develop a new product
  • devise a new method of production
  • create a new working process.

It’s good to bear in mind that your project is more likely to qualify for R&D tax relief if it includes trials, tests and a period of analysis as part of your journey, solving a unique problem.

Types of R&D tax relief schemes

There are two main types of R&D tax relief that companies can use, the first being the SME R&D relief scheme.

As you might have been able to tell, the scheme is available to companies with fewer than 500 staff, a turnover below €100 million or a balance sheet  total below €86m.

With the scheme, SMEs can deduct an extra 130% of their R&D qualifying costs from their yearly profit, on top of the regular 100% deduction. Alternatively, they can claim a credit if they are making a loss, worth up to 14.5% of the surrenderable loss.

Companies with more than 500 members of staff, meanwhile, are able to qualify for the R&D expenditure credit, which is worth 13% of their qualifying expenditure.

Need help with your R&D tax relief claim?

You need to submit your R&D claim as part of your corporation tax return. Unfortunately, though, the Government is making this already complicated process even more complex.

From April 2023, the Government has suggested companies will need to notify HMRC in advance, while needing to submit some detailed documentation to make their claim, including a breakdown of expenditure and key details of the project.

Stronger compliance may also give rise to concerns over the growing complexity of the tax relief claims process, so you will have to make sure you get it right the first time.

Talk to us about your R&D tax relief claim. We’ll help you every step of the way to help you save money on your tax bill.