Research and Development Tax Relief - what is it and can I claim?

What is R&D Tax Relief?

Research and Development (R&D) tax relief was introduced by the Government in 2000 and was launched with the purpose of encouraging and rewarding creativity and innovation among Limited companies in the UK.

R&D is one of the biggest tax reliefs available to SMEs and can be worth up to 33% of a company’s R&D expenditure – or 33p in every pound. This, in effect, is free money for small businesses and even loss-making companies can claim R&D tax relief. R&D claims can be made retrospectively for any R&D activity carried out in the last two years.

 


Can I claim?

However, an alarming statistic released by the Government suggests that only 5% of eligible small businesses less than three years old are claiming the R&D tax relief they are entitled to. When you consider the fact that the average R&D claim is worth £51,000 per year, it really is a substantial amount for any small businesses and can make a significant difference to the financial health of a company and even to its chances of survival in those crucial early years.

Why do so few businesses claim?

This extremely low percentage take-up for new businesses can be attributed to several factors: Firstly, there is a lack of awareness that R&D tax relief exists, probably because it isn’t well publicised by the Government.

Secondly, many SMEs believe relief is only available for scientific firms such as pharmaceutical companies and therefore are unaware that the work they undertake qualifies for tax relief. Conversely, research indicates that 8 out of 10 SMEs qualify for R&D tax relief and they operate in every sector.

And finally, there is the misunderstanding that claiming is expensive and time consuming. This is a reasonable mistake to make when all resources and focus for new businesses are geared towards growth and profitability. The reality, however, is that reputable R&D tax specialists – as can be found on our panel of experts: https://www.businessbutlerswansea.com/team/phil-moore/– will do all the work in return for a commission from any successful claim.


To address the first issue mentioned above, the Government or HMRC has to raise awareness of R&D tax relief for SMEs, because there is a direct correlation between the number of businesses that know about the scheme and the percentage of them that will claim.

What you need to demonstrate

To ensure that you don’t fall into the trap that second point covers, here is a list of what you need to prove as a business owner to qualify for R&D relief:

  • Your R&D project sought an advance in science and technology
  • Your R&D project had to overcome uncertainty
  • Your R&D project attempted to overcome this uncertainty
  • Your R&D project could not have been easily replicated by a professional in your industry

 

The third bullet point is important because it means that even if your project failed you are still eligible for tax relief. Business expenditure that qualifies for R&D projects includes:

  • Software
  • Staffing costs
  • Consumable or transformable items
  • Contracted costs
  • External workers

 

Why you should apply?

The Government appreciates how important R&D is to the future of the UK economy, especially with the uncertainty of what lies ahead following Brexit. And it is those SMEs that innovate and adapt that will succeed in a very competitive market. So, on a personal level, you need to ask yourself whether your SME can afford to miss out when your rivals are already busy making their claims?

And remember, if you still need help, speak to our Expert Panel in your area: https://www.businessbutlerswansea.com/team/phil-moore/ . Whether it’s Tax advice or Tender writing, we have Business Butler Verified Experts near you for every area of expertise. All initial consultations are completely free.