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R&D Tax Relief for Your Business

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R&D Tax Relief

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R&D Tax Relief is about reducing your corporation tax bill, or even getting cash in exchange for your losses. The first step is to identify whether any activities you do count as R&D for tax purposes (see Are you Eligible?). This process is the same for all R&D tax relief schemes.There are two main schemes, SME and Large Company, with fairly different rules. These schemes apply to eligible R&D costs which are normally deducted from your profits in an accounting period – revenue costs. The schemes work by allowing you to extend these costs by an agreed factor for tax purposes, producing a superdeduction.

Only certain types of qualifying costs are allowed under these two schemes, so not all eligible R&D costs may be claimable. The scope of costs is sometimes different between the two, but has the same broad categories:

• Staff Costs including some extras
• Items consumed or transformed in the R&D process (e.g. prototypes)
• R&D subcontracted to third parties (not all, different rules)
• Externally provided workers (e.g. agency staff) – some special rules
• R&D software costs
• Water, fuel & power used in the R&D process
• Contributions to relevant external R&D (e.g. Universities) – only LargeCo

Most of the categories have been changed and/or introduced since the original start of the scheme in 2000. There are quite a few fiddly rules which are often missed, and some specific interpretations by the tax authorities.