R&D Tax Incentives

Smith & Williamson partners with clients to optimise their R&D tax relief.

In an ever-changing world the need to be innovative and forward-thinking has been recognised across businesses and governments alike. The UK Government’s goal is to increase Research and Development (R&D) spending from 1.7% to 2.4% of GDP by 2027, moving in line with the rest of Europe by providing a generous incentive for companies that invest in innovation.

How do R&D tax incentives work?

Activities that advance the overall knowledge or capability in a field of science or technology, while overcoming scientific or technological uncertainties, may qualify for R&D relief.

For small to medium-sized enterprises (SMEs)

R&D Tax Relief, can reduce a company’s corporation tax liability or can result in a payable tax credit. The benefit can range from 25-33% of the qualifying expenditure identified.

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For large companies

The R&D Expenditure Credit (RDEC) is an above-the-line taxable credit of 13%, that can either reduce a company’s tax bill or allow it to claim a cash credit.

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R&D Capital Allowances (RDAs)

RDAs provide the opportunity to claim 100% tax relief of capital expenditure related to R&D activities. Unlike other capital allowances, there are no limits to the amount that can be claimed.

 

What sets us apart

We are not just tax consultants, we are trained engineers, scientists, accountants and software specialists. S&W has brought together the market’s most specialised and diverse R&D advisory team. We do not compartmentalise our roles. Our specialists are well rounded in both the technical and financial aspects of R&D tax incentive claims, providing you with maximum value and helping you throughout the claim process.

How we help

  • We give real-time eligibility assessments and tracking of technical and financial information;
  • We expand the boundaries of R&D beyond limited traditional scopes;
  • We use technology to integrate R&D into established processes;
  • We mitigate risks by identifying them early and forecast the benefit generated to plan cashflow accordingly;
  • We assist companies in establishing and growing a culture of innovation by helping them identify, promote and reward innovative activities;
  • We advise businesses on how to reinvest and fund R&D; and
  • We collate and present data intelligently to improve its accessibility and usability to inform commercial decisions.

As active members of HMRC’s R&D Consultative Committee, we regularly liaise directly with HMRC’s key stakeholders on policy, legislation and technical matters.

Our approach

We streamline your R&D claim, ensuring that you maximise your return while minimising risk. We scrutinise all aspects of a company’s operations ensuring that all R&D expenditure is accounted for while maintaining minimum disruptions to your usual business operations. See our Approach here

Our services include:

  • Feasibility assessments;
  • High level R&D reviews;
  • Full R&D claim preparation;
  • Real-time project tracking; and
  • Training and contract reviews.

Like our clients, we continually strive to be innovative. Our client’s needs are as diverse as the industries in which they operate. Every claim is individually tailored for the client.

 

Frequently asked questions

What costs can we claim for R&D?

Businesses may claim revenue-based expenditure for staff costs, utilities, consumables, software licences and some third-party expenses. Relief cannot be claimed on items of a capital nature, such as the purchase of plant and machinery, although R&D capital allowances may be available. Development costs capitalised as intangible assets may potentially be treated as revenue in nature for R&D tax purposes.

What are the potential benefits when making a R&D claim?

The amount of the benefit and the way it is calculated differs depending on the size of your company. Large companies can receive a 13% credit of eligible expenditure. Small to Medium Enterprises (SMEs) receive an enhanced deduction that can be cashed out if the company makes a loss. This benefit can range from 24.7% to 33.35% of the qualifying expenditure identified.

Depending on the company’s size and taxable profit position, R&D tax credits can be paid as:

  • A corporation tax refund;
  • A cash credit; or
  • An enhanced deduction to carry forward against future profits.

What is the R&D claim process?

R&D tax relief is claimed within the company tax return. In order to claim these costs, the business must prove the eligibility of the associated activities. We assist in the preparation of a report detailing how the eligibility criteria have been met, including:

  • Advancements sought;
  • Uncertainties faced;
  • How these uncertainties were overcome; and
  • Why the knowledge was not readily deducible by competent professionals.

This report will be submitted to HMRC alongside your CT return.

How far back can we make a claim for R&D Tax Credits?

Because R&D tax relief is claimed through a company tax return, companies have two years after the end of their financial year to submit an R&D claim. A company year-end 31 December 2018, for example, would have until 31 December 2020 to make an amendment to claim R&D relief.

What if we have paid someone else to perform R&D activities for us?

An SME can generally claim for 65% of the payments made to unconnected parties. Subcontracted work may be further subcontracted to any third party. Special rules apply to scenarios where the parties are connected.

Subcontracted R&D expenditure is generally not allowable for large companies under the RDEC scheme.

Subcontracting of R&D can be a complex area and can be depended on the activities and specific contract details. It is worth speaking to one of our R&D Incentives Advisory team members regarding eligibility of third-party costs.

Can oversees costs or activities be included?

There is no specific geographical restriction on R&D tax credits; the location of the activities does not affect eligibility.

There is potential to include these costs if the activities are within the scope of UK corporation tax, either because the overseas activities are carried out by staff of the UK entity or because a cost is charged to the UK entity.

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Justin Arnesen

Partner, R&D Tax and Government Grants, Business Tax

Business tax
London

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