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 how how companies can meet the deadlines for R&D tax credit claims and all the key R&D tax relief changes coming into place in 2023.
Chancellor Jeremy Hunt has announced a series of changes to the UK research and development (R&D) tax relief regime, including a cut to the deduction and credit rates for the SME scheme, the R&D tax credit. The rate of the large company scheme, the R&D expenditure credit (RDEC) will be increased from 13% to 20%, […]
On September 29th HMRC released the latest R&D tax credit statistics for 2022. These stats confirm that innovation continues to be key to the success of UK businesses – even during the most testing time of the pandemic. The new tax credit statistics released include finalised figures for the 2018-2019 and 2019-2020 tax years, as […]