What types of expenditure relate to R&D?
For a number of businesses we work with, the R&D expenditure we identify is rarely labeled as such. Because of this, many often think they’re not actually eligible for tax relief. This really couldn’t be further from the truth. Think back over the past 2 years and ask yourself, have I…
- Looked for a more efficient or more effective solution
- Created a new product or made improvements to an existing one
- Explored new methods or processes
- Trialed new materials or computer code
- Solved problems or overcame issues for customers
If the answer is yes, the chances are you’re probably eligible for R&D tax relief.
The type of activity which a company can claim under is split into two categories: ‘direct’ and ‘indirect’.
Examples of direct activities are:
- Scientific or technological planning, design, testing, and analysis
- Activities which design or adapt software, materials or equipment
Examples of indirect activities are:
- Information services e.g. preparation of R&D reports
- Indirect supporting services e.g. maintenance, security, clerical
- Ancillary services e.g. paying staff, leasing laboratories and equipment
- Indirect activities would all have to be undertaken for the R&D project
When breaking down R&D expenditure, companies are able to claim for things such as staffing costs, software, consumable or transformable materials, costs of work done by subcontractors and external workers and costs of clinical trial volunteers.
Although it is useful for companies to keep a timetable of their R&D expenditure, claims can be based on a reasonable estimation of what is being done. When making retrospective claims, dialogue between our advisors and your team is enough to verify R&D activity.
Examples of an R&D expenditure claim
The following examples apply from 1st April 2015:
A loss making SME has allowable R&D expenditure of £100,000
The enhanced claim is £100,000 x 230% =£230,000
The company decides to surrender this loss for a cash repayment. The amount they would receive is £230,000 x 14.5% = £33,350
A profitable SME has an allowable R&D expenditure of £100,000
The enhanced claim is £100,000 x 130% = £130,000
The amount is then an allowable deduction against profits subject to Corporation Tax. So the further tax relief it would receive would be £130,000 x 20% = £26,000