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Is R&D tax deductible? 

by Adam Park | December 21, 2022

Costs involved in R&D are tax deductible and there are two ways in which R&D costs can reduce a companies Corporation Tax liability. Firstly - with the usual deduction of 100% of the cost from your companies profits. 

In addition, the R&D Tax Credit scheme allows a further deduction of 130% of eligible R&D costs, providing a total 230% deduction. With a Corporation Tax rate of 19% - this provides a tax reduction of 25p in every £1 of R&D expenditure.

It’s also worth noting that even companies who are not paying corporation tax can stand to benefit by claiming the Payable Tax Credit.

What R&D costs are tax deductible?

The types of costs that can qualify for research & development (R&D) tax relief are extensive. They can be broken down into 5 categories:

  • Direct and externally provided staff
  • Subcontractors
  • Consumables such as material and utility costs
  • Software
  • Trials and prototyping
  • Independent research costs

Capital expenditure does not qualify under this scheme, nor does expenditure on the production and distribution of goods and services. However you can receive tax relief on R&D capital expenditure through the R&D Capital Allowances scheme.

What’s the process to claim R&D tax credits?

R&D tax credit claims are monitored and processed by HMRC and you can make a claim going back 2 accounting periods.

Although it is not currently a legal obligation, we recommend that an R&D technical report is produced that justifies the underlying technical advancement and uncertainties as well as details the eligible expenditure that is being claimed on a project by project basis. From April 2023 - this report will become mandatory.

In order to ensure your activities qualify as R&D under the guidelines, we recommend speaking with a reputable R&D tax specialist to ensure you're not claiming ineligible projects that could land you in hot water with HMRC.

How can we help?

With increased HMRC scrutiny on every R&D claim, profiting from our years of specialist R&D tax credit knowledge and experience can help increase your chances of a successful claim. Of course no claim is guaranteed and so our experts will analyse your project from a scientific & technological perspective to ensure it qualifies under the scheme, and create a detailed claim report, before making any submission.

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