Research & Development Tax Reliefs

Did you know if your company does or has done qualifying research and development, you may be entitled to an R&D tax relief?

Do I qualify for R&D tax relief?


If your company has developed, adapted, improved, or integrated products, systems, or processes to optimise your operations, then there is a good chance you qualify for R&D tax relief.

The Research & Development Tax Relief initiative works by providing an enhanced additional tax deduction for the costs incurred in undertaking qualifying research and development, resulting in either: a cash refund for overpaid company tax; a reduction in company tax now and for future years; or an immediate cheque to cover some of the costs of the research and development.


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“We thought that R&D tax relief only applied to new scientific products but when WR Partners explained that it applied to our integrated order, supply, and delivery system to deliver furniture to the exact customer requirements, we were delighted with the refund and ongoing tax savings. ” — Online Furniture Retailer

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What is research and development?


It all begins with an idea. Maybe you want to launch a business. Maybe you want to turn a hobby into something more. Or maybe you have a creative project to share with the world. Whatever it is, the way you tell your story online can make all the difference.

Research & Development Tax Relief was introduced by the Government to provide an incentive for UK companies to undertake innovation. It was considered that the UK was lagging behind the rest of the world so a tax initiative was introduced to stimulate innovation and development and also aimed at encouraging inward technology investment into the UK from foreign corporations.

Claiming R&D tax relief


If you think you are incurring time and costs to achieve a competitive advantage by improving products, processes, and services mechanically or technologically, there are 3 simple steps to make a Research & Development Tax Relief claim:

Step 1: Give us a call and we will arrange a meeting about your development work and assess whether a claim is feasible under the guidelines.

Step 2: If feasible, we will confirm the costings and prepare a report for your approval with a revised tax computation claiming R&D tax relief.

Step 3: On your approval, we will submit the computations and chase HMRC for any tax savings.

We will then deal with any enquiries from HMRC to secure a successful claim for Research & Development Tax Relief.

FAQs

What qualifies as R&D?

The detailed guidance is given in the Business Innovation and Skills Guidelines (formerly DTI Guidelines 2004). However, if you undertake the following, you may qualify:

  • New Products, New Processes (internal or external), New Services
  • Enhanced products, processes, and services with improved features, durability, reliability, efficiency, capability, resilience etc.
  • Bespoke software programs to integrate multiple systems and improve existing systems

Overall, if you are incurring costs to achieve a competitive advantage or comply with new regulations by improving products, processes services or increasing margins by improving productivity and efficiency, you should be undertaking qualifying research and development.

Who can claim R&D tax relief?

Only limited companies can claim R&D tax relief.

There is also scope for small companies undertaking R&D for large companies (more than 500 employees) or small companies receiving third-party funding to claim R&D tax relief known as RDEC (research and development expenditure credit).

Why should you claim tax relief for research and development?

The tax relief for the SME scheme works by uplifting the direct costs of the research and development by 130% for expenditure up to 31 March 2023 and 86% from 1 April 2023. If your costs for the research amounted to £100,000, your taxable profit would be reduced by a further £130,000 to 31 March 2023 (£86,000 thereafter) meaning you save tax or should have tax refunded of £26,000 to 31 March 2023 (£18,600 thereafter).

What can I claim through the R&D Tax Relief Scheme?

The main cost will be the time spent by directors and employees on the qualifying research. For example, an employee and a director may spend 2 days a working week on R&D for a year. This results in 40% of their salary, NIC and pension contributions being eligible for the enhanced additional deduction.

Other costs include paying third parties (for research, testing, etc.), materials and tooling (for say prototypes, test models etc.), software used directly to test the R&D and a proportion of overheads (heat, light, water).

It is possible to also include some ancillary activities such as security, finance, maintenance, market research, training, leasing and training.

How do I calculate my R&D Claim?

For example, if all the costs (salary, materials, ancillary) total £50,000 per account. The enhanced additional tax deduction is 130%.

Therefore another £65,000 (130% of £50,000) is deducted from the taxable profit in the tax computations submitted to HM Revenue & Customs.

This results in a tax saving of £12,350 (19% company tax on £65,000).

Additional tax deduction results in a repayment of overpaid company tax or a cash cheque from HMRC of 14.5% of the additional deduction. In this case £9,425 (14.5% of £65,000).

This deduction does not affect the accounting profit so has no impact on profit reporting to third parties such as customers, suppliers and lenders.

Is there a time limit when making an R&D claim?

The time limit for a claim is 2 years from the end of the accounting period e.g. the deadline for the year ended 31 December 2024 is 31 December 2026.

Are there any costs when making an R&D claim?

WR Partners usually operate on a no-win no no-fee basis at 20% of the tax savings. However, we will assess every claim on a case-by-case basis to ensure our fees do not outweigh your tax savings.

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