If you’re a company who plans to develop new services, processes or products, you could claim corporate tax relief on your research and development (R&D) projects. In this article, we explain how understanding tax relief for research & development projects can help reduce costs.
What counts as research and development?
What counts as R&D is fairly wide. You have to be working within around developments across your industry for your R&D project, and looking to develop a new product, process or service. Alternatively, you could also be looking to modify an existing product, process or service that doesn’t work or isn’t fit for purpose now.
Your project needs to:
- Be looking to advance an area of your industry through science or technology
- Needs to undertake research, because you know there’s no certainty it will work. You can claim R&D relief on unsuccessful projects as well.
- Has tried to overcome the issue that there’s no certainty the project will work
- Could not easily be solved by a professional in the field e.g. a consultant, engineer etc.
The advance you’re looking for needs to be for the whole field you work in, not just for your own business. You can also claim for work done on behalf of a client, not just for your own direct projects.
What can I claim?
You can claim for staff expenditure; including salaries, employers’ NIC and pension contributions, and that includes payments to subcontractors and freelancers. Claims can also be made for expenditure such as heat, light and power that was used during the R&D process. You can claim for some types of software too, if they were purchased for the R&D project. The rate of corporate tax relief is different depending on the size of business you have.
SME R&D Relief
If you’re a small to medium-sized business you can deduct 130% of the qualifying costs from your annual profit, on top of your usual 100% reduction. If you’re making a loss, then you can claim tax credits of up to 14.5% of the loss.
For large companies or SMEs linked with a large company partnership
If you’re a large company or an SME in partnership with a large company (which rules you out of SME R&D relief), you can claim a tax credit for 12% of all your qualifying spend. Essentially you could be due a sizeable chunk of tax relief if you’re undertaking research and development in your industry, and if you’re not sure if this applies, it’s wise to get some advice on whether you can make a claim.
Understanding tax relief for research and development projects – where to find out more
We can help obtain funding for your research and development project – please get in touch if you’d like to discuss this with us.
Find out more about our services on our business finance solutions page.