Don’t let recent press coverage stop you claiming Research & Development relief
If your company undertakes any Research and Development (R&D) make sure you maximise your claims for relief. In this article we highlight some often overlooked areas and practical examples of how we have helped clients increase their claims.
The basics
R&D tax relief is available to companies of all sizes. The corporation tax relief could reduce your company’s tax bill by more than your actual expenditure on allowable R&D costs. Alternatively, if your company is a small or medium-sized enterprise (SME), you may be able to receive a tax credit instead.
For a brief description of R&D and details of the extension to the relief for SMEs from 2008 see the article in our October 2007 edition of Talking Tax. A copy can be found on the tax section of our website.
Recent press coverage
Recent comments in the press suggest that HM Revenue and Customs (HMRC) are “clamping down” on R&D tax relief claims. In our experience and discussions with R&D specialist units these comments are overstated. Having said that HMRC do have particular concerns about:
- “Production”, where R&D prototypes are sold on to customers, and
- Intellectual property, particularly where a company may not have sole rights to it.
The press commentary should not dissuade companies from making R&D claims; we continue to save large amounts of money for our clients by doing so.
Overlooked opportunities
Most companies are aware of R&D tax relief and may have submitted claims, however companies should review their R&D claims to ensure they are claiming their full entitlement, for example:
Internal process improvements
Process improvements may qualify for R&D relief in addition to product development work.
Our client, Lister Shearing Equipment Limited, designs and manufactures a range of animal shearing and clipping equipment. During discussions with the company we identified an internal project to improve a complex manufacturing process. The company invested considerable development effort in this regard and we have helped them prepare a successful claim for additional R&D tax relief for this work.
Funded R&D
With limited cash reserves, companies are increasingly looking for grant funding for their development work. Even though a grant is received, R&D tax relief may still be available and advice should be taken.
Subcontracted R&D
If a company is undertaking R&D work as a subcontractor for a large company, such as the provision of technical and engineering services, it may still qualify for R&D relief even though its work is paid for.
Capitalised R&D
It is a common misconception that capitalised development costs are ineligible for R&D relief.
We recently made a claim for our client, Skot Transformers Limited, which designs and manufactures power units for wind turbines. Although it capitalises the costs of its R&D work we successfully claimed these as deductible revenue costs for tax purposes, as well as claiming enhanced relief.
Capital expenditure on assets for R&D activities
If a company incurs expenditure on equipment for R&D it may be able to accelerate its tax relief. Even better, expenditure on buildings for R&D qualifies for a full tax deduction (buildings normally attract minimal tax relief, if any).
We prepared a claim for a company that designs and manufactures specialist dental equipment. The company designed bespoke machinery to improve production processes and we successfully claimed 100% R&D allowances for the costs incurred. This company is also investing in new factory premises and we will be claiming R&D relief for R&D areas of the building.
Identifying qualifying expenditure
We assisted Permali Gloucester Limited, a defence company, to increase their claim. We secured HMRC’s agreement to claim the costs of shopfloor employees involved in building and testing prototypes. We also claimed the costs of materials used up in large batch production runs to produce relatively small amounts of material for R&D purposes.
Failed R&D
If a company undertakes unsuccessful R&D activities then a claim for enhanced relief can still be made.
Action
If your company does any R&D you should check that your claims maximise the relief due to you. Our specialist R&D team have had considerable success increasing clients’ claims and we would be happy to assist in reviewing your position and/or preparing claims.