Partner Article

Research and Development tax relief

Research and Development (R&D) is seen as increasingly important in enabling companies to compete globally and of strategic importance to the British economy. It is therefore vital that companies can afford to finance R&D, even in these difficult economic times.

But what qualifies as R&D for tax purposes?There are a myriad of rules around these definitions, but an important test is that ‘technological uncertainty’ needs to be present in order for the work to qualify. In the eyes of the DTI (now BIS), R&D has a much wider definition than generally thought.

The DTI Guidelines state that technological uncertainty “exists when knowledge of whether something is scientifically possible or technologically feasible… is not readily available or deducible by a competent professional working in the field.”

You can see from this statement is that your development does not need to be unique, ‘a first’ or the ‘best’ in your industry. But this is just one of many phrases in the guidelines that need to be carefully considered against your activities.

What can we include in our claim?Staff costs are typically the largest part of a claim. We can also include contractors, sub-contracted work and also materials used for sampling or prototyping (consumable items). There are also further cost categories that can be included. All of these cost categories have different rules that need to be considered in each case, and so blanket judgements are generally not possible.

Classic areas that are overlooked are functions like project management, support staff, testing, and directors that are involved in the management of a development project.

What’s it worth?Companies can use a claim to enhance their R&D expenditure to offset against their Corporation Tax liabilities. Broadly speaking, the net cash benefit is up to 25% of the qualifying expenditure for SME’s and around 8% of the qualifying expenditure for large companies. This is paid in the form of a cheque from HMRC, typically paid within 4 to 6 weeks of submitting the claim.

But my company is loss-making?Loss-making companies have the option of either using a claim to enhance their losses, OR an SME can surrender the enhanced losses for R&D Tax Credits! For SMEs, the net cash benefit can still be up to 25% of the qualifying expenditure.

It starts to become even more appealing when companies realise that they can also claim for the last two completed accounting periods at the same time.

Having the right people to compile your claim ensures that you are accessing its full potential whilst also ensuring the claim is defensible against any HMRC enquiry. Your accountant may struggle to identify the full breadth of your claim and compile a supporting technical report.

At LinkStep, our approach is to utilise a highly-skilled multi-disciplinary team that combines the specialisms of separate technology and financial analysts – an approach that is vital to submitting a valid and fully-optimised R&D claim. Our expertise in the field of R&D tax is hard to match. The executive team have been collectively involved in over £150million of R&D claims since 2002.

LinkStep can hold initial discussions with you to investigate any potential scope completely free of charge. Assuming qualifying R&D activities are identified, we can design a tailored approach for your company to make successful R&D claims.

This was posted in Bdaily's Members' News section by Ruth Mitchell .