Research and Development

R&D isn’t just for nutty professors

If your company carries out research and development (R&D) then you could qualify for R&D tax credits that may reduce your company’s corporation tax liability.  Because of size most companies will claim relief within the small or medium-sized enterprise (SME) scheme.  The HMRC website contains a good description of the SME scheme; “From 1 April 2015, the tax relief on allowable R&D costs is 230% - that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.”

Where many companies stop reading when considering a claim is the definition of R&D.  A company qualifies where a “R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty, and not simply an advance in its own state of knowledge or capability”.  This sounds intimidating but the case law highlights some apparently wide definitions applied to R&D.  One such example is the Two Michelin star chef Sat Bains; in 2003 he successfully claimed R&D tax credits for his Nottingham development kitchen for research of flavour combinations and development of techniques to improve menus and service in the restaurant.  Other sectors in which successful claims have been made include advertising, construction and telecommunications.

There’s a perception that R&D claims are limited to those that work in laboratories and spend all day experimenting, but this is far from the truth.  If your business is involved in an innovative activity then it could qualify for R&D tax credits.