R&D Tax Relief – Support for Innovative Companies
R&D tax relief was first introduced almost 20 years ago, and is still widely under-claimed, even though the relief can be worth almost £25k in tax saved for every £100k of qualifying spend.
As claims can be made retrospectively for the previous two years for first time claimants, there are considerable amounts of cash to be unlocked by innovative companies.
If you have never previously considered your company making an R&D claim, or if you have claimed in the past but may not have maximised your claim, now is an excellent time to (re)consider making a claim.
What is R&D Tax Relief?
Very simply, it’s a way in which the government provides financial support to innovative companies via the tax system, either by reducing corporation tax or in some cases offering cash payments. The rate of relief varies depending on the size of the client. Most companies in our region are able to benefit from the SME rules, which provide for corporation tax relief of 24.7% of qualifying expenditure. Loss making companies can choose to cash in their losses for an immediate tax credit equal to 14.5% of the loss.
Who qualifies for the relief?
R&D relief is available for companies seeking to achieve an advance in science and technology through the resolution of scientific and technological uncertainties.
One of the main reasons that the relief isn’t claimed by all qualifying companies is a lack of understanding of what this means in practice, with the level of innovation required to claim being overestimated.
To help overcome some of this uncertainty, the Radius team has recently published a Guide to R&D Tax Relief Claims which focuses on short case studies illustrating the variety and scope of R&D claims (LINK TO GUIDE).
The Guide illustrates the fact that relief is available to companies undertaking product and process development in all sectors including Software, Manufacturing, Transport, Printing and Construction – along with the science-specific sectors where you would expect to see R&D.
R&D tax reliefs for companies working with software
For example, a company developing software for event and venue management saved over £30k in corporation tax on a project providing a real-time solution to improve existing situational awareness and threat resolution systems. To achieve this advance the company had to overcome uncertainties in scalability, reliability, and integration.
Transport, manufacturing and more
In the Transport sector, a company manufacturing trailers saved over £85k developing innovative freight lifts which improved the efficiency of transportation. A Casting manufacturer saved over £35k developing a range of specialist casting solutions, focussing on minimising lead times and increasing yield.
Other examples from the manufacturing field include a shoemaker and a manufacturer of sports equipment, saving £15k and £40k respectively. Another area which sees a significant number of R&D claims includes Printing, where the developer of printing machines saved £40k by improving their product range.
In the Construction sector, an engineering company incurred qualifying costs resolving technical uncertainties in designing high rise apartments.
How do I claim R&D tax relief?
Claims to R&D tax relief are made in the company’s tax return.
It’s recommended to engage with an R&D specialist who fully understands the legislation and guidelines as to what activities do and do not qualify for relief to ensure your company accurately assesses its ability to claim, and that any claim is maximised.