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.
The types of costs that can qualify for research & development (R&D) tax relief are extensive. They can be broken down into 5 categories:
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.
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.
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.
Find out about the upcoming changes on August 8th 2023 of submitting an additional information form to HMRC to support R&D tax credits claims.
Understand HMRC enquiries and compliance checks for R&D tax credit claims. Learn what triggers an enquiry and how to avoid getting an enquiry.
Discover how Green Steel, a recycling specialist secured an impressive £250,000 in Research & Development (R&D) Tax Credits.