Research & Development (R&D) tax relief was introduced in 2000 to encourage companies to spend more on their innovation, either by reducing their corporation tax liability or through a cash payment. It can seem like quite a complicated process for anyone who hasn’t been through it before, so at Taxar Innovation Partners, we’d like to make it a bit more simple for you.
There are a whole range of different qualifying activities that you could claim for, some of which are probably a bit more obvious, but some you may not have considered as part of your research and development process.
Creating new or improving existing products or services
This one may seem quite obvious, however there are elements of this which many companies do not include in their R&D tax relief submissions.
In many industries there is a constant requirement to carry out research to develop or redevelop products to keep up with the ever-changing needs of their customers and stay in line with competition. Although it is clear that you can claim for any of the costs associated with this process, many forget that they can also make a claim for product development which is unsuccessful, or even still ongoing. As long as research has been carried out, this is eligible for R&D tax relief.
Aborted or failed projects
Scientific or technological planning activities associated with projects which are not taken forward are still considered research & development and are completely eligible for a claim.
Creating ‘prototype’ solutions
While some businesses are able to use off-the-shelf solutions for their specific needs, many others will resort to using unique, one-of-a-kind technology to answer a particular requirement for their internal processes or customer needs. This usually requires an extensive amount of research and development, all of which is eligible for R&D tax relief, if this is considered an advance in your industry.
As part of your R&D claim, you should always include associated staffing costs. This takes into account gross salaries (including wages, overtime and bonuses), employer NI contributions, employer pension contributions and certain reimbursed business expenses.
It’s worth noting that employee benefits such as company cars can’t be included in your staffing costs, and neither can director dividends. Although some members of staff may be working on the project full time, it’s likely that most will only be semi engaged, so you will need to work out the appropriate apportionment of their time and salary.
In addition to employed staff, you can also include money spent on contracted, subcontracted or externally provided workers.
Any items that are consumed in the R&D process of your project can also be included in your claim. This includes things such as water, fuel, power and materials. You should note that this does not include materials which form part of the product to be sold.
If your business has transformed an existing piece of software beyond its initially designed purpose in a way which is considered an advance in your industry, this will also be eligible for R&D tax relief.
Additionally, any improvements in scientific or technological means to create, manipulate and transfer information or other content can be considered to be scientific or technological advances, and resolving the scientific or technological uncertainty associated with such projects would be considered part of your research & development process.
While many companies rely on their accountant to complete their R&D claim, there are many nuances and complicated criteria which can make eligibility and qualifying activities seem quite ambiguous, and many end up claiming far less than they’re entitled to.
For this reason, we always recommend using an R&D tax specialist like Taxar. If you’d like to find out more, please get in touch and a member of our team will be happy to discuss your situation.