What is Research & Development Tax Relief?

Accountancy Best PracticeR&D Tax Credits
Written By Craig Williams
What is Research & Development Tax Relief?

R&D Tax Credit Specialists in London

Many new businesses spend the first season of their existence researching and developing a concept or a prototype. If any project on which the company works is seeking to make an advance in the fields of science or technology, the costs of that project may be eligible to provide the company with extra tax relief, through its annual corporation tax return. 

In this post, our R&D tax credit specialists take a brief look at R&D Tax Relief and the costs that are eligible for tax relief.  This extra relief could be as much as 25% of the cost of the project.  For a loss-making company, a cash rebate of up to 33.5% is available in lieu of tax relief, which is often paid within 4 weeks or a successful claim being made.  

This relief or rebate could make a huge difference to a bootstrapping startup and as HMRC believe that 75% of business who could be claiming R&D tax relief do not, it is too often a missed opportunity.  

Does Your Business Qualify?

You can claim R&D relief up to two years after the end of the accounting period of the expenditure. The following criteria are flags that you could be eligible: 

  1. You are innovating, improving, or inventing processes or technologies which are not currently available on the market

  2. To your knowledge, at the start of the project, you have no clear answer of how the project will conclude. This uncertainty proves the first point that the development is producing new knowledge.

  3. You can document evidence of your research and development, and the expenditure relating to these activities

Eligible Costs 

If your company meet the criteria laid out above, you should endeavour to maintain detailed records of every cost associated with the project, including:

  1. Staff costs associated with the project. Some staff may work entirely on the project. In these instances, it is straightforward. Other staff may work a proportion of their time on this project, or on things associated with the project such as recruiting someone to work on the project. Using timesheets or similar, a log should be kept of this proportion as that might be eligible. For example, a staff member who works 30% of their time on the project while on a salary of £30,000 can be deemed a cost of £9,000 on which extra tax relief is available.

  2. Subcontracted staff. On the same basis as above, the costs associated with subcontractors rather than employees is eligible.

  3. Software associated with the project. If the software was bought or licensed entirely or in part to service the project, these costs are eligible too.

  4. Consumables. Any utilities or materials used in the project are eligible for tax relief.

  5. Ineligible costs. These include the costs of distributing the goods produced, capital expenditure, rent or rates, and the cost of patents.

If you think your company may be eligible based on the information above, consult with Dragon Argent’s R&D tax credit specialists who can advise and ensure everything is done properly to maximise the chances of receiving the relief.  Credit is also available to loss-making companies and can help build tax losses to be deducted from future profits. For more information, speak to our SME & startup accountants.

Research and Development Tax Calculator

If you think your business would qualify and you have eligible costs which you could claim again, use our R&D Tax calculator here to get an estimate of the value of a rebate. 

Book a call with R&D Tax Credit Specialists ↓

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