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R&D Enhanced Deductions

Companies (not unincorporated businesses), can claim enhanced deductions for qualifying costs they incur on research and development (R&D) projects. For small companies the deduction can be 225% of the qualifying costs, and since April 2012 there is no minimum spend required in an accounting period.

The major barrier to claiming this tax relief is working out whether your project qualifies as R&D. To qualify it must push the boundaries of scientific or technical knowledge. Ask yourself:

  • Has anyone else done what we are trying to achieve with this project?
  • If another business has achieved that goal, have they kept their discovery secret?

If the answers to those questions are a) no and b) yes, then you probably have an R&D project, but you need to monitor the point where R&D turns into regular production of the new product or process.

Some R&D projects can attract grant funding. If this applies to your company you need to be careful as a Government funded grant can disqualify the project from R&D tax relief for small companies. Your company may still qualify under the large company scheme for R&D tax relief but the maximum deduction under the large company scheme is 130% of the qualifying costs rather than 225%.

If your accounts show a loss after the enhanced deduction for R&D costs, you can claim a payable tax credit by surrendering that loss to HMRC. This will only apply if you have claimed the R&D deduction under the small company scheme, not the large company scheme.

We can help you jump through the hoops necessary to claim R&D enhanced relief, but we will need to talk about your R&D projects in detail.

Research and development claims

Did you know there is a tax relief for companies which invent stuff? The process of inventing and solving the associated problems is called research and development (R&D). Companies can more than double the tax deduction given for the costs of R&D.

The new ‘stuff’ could be a product, a material or a process which has been changed or improved. For example if you find a way of speeding up a production line, or changing the process to cope with a new type of material, the work to achieve that aim is R&D which should qualify for the tax relief.

Many innovative ideas don’t actually work. That doesn’t matter. The costs expended when working on your new idea are tax allowable as R&D, if you can show you were pushing the boundaries of knowledge or capability in the fields of science or technology.

Working on some types of computer programming can count as R&D, particularly where you are making previously unrelated computer systems work together. The key is that no-one else has done what you are trying to, or if they have achieved it, they have kept their discovery to themselves.

Talk to us about innovative work. Even small costs are worth claiming as there is now no minimum claim for each year.