Research and Development (R&D) tax reliefs provide an opportunity for companies to claim additional corporation tax relief for certain costs in order to reduce taxable profits and their corporation tax liability. The relief is only available to companies and cannot be claimed by partnerships or individuals.
R&D comes in many forms, for example, developing new products, systems or capabilities. In a dental/health context, non-routine work that aims to improve patient outcomes by developing or trialling new techniques and approaches may therefore qualify. Because of its broad nature, and the fact that many people often do not realise their practice is doing R&D because what they are doing is often seen as part of their ‘normal’ clinical practice, it could be the case that a dental practice company is already undertaking activities that qualify for relief. It may also be possible to structure future activities and documentation to improve the prospects that relief can be claimed.
The relief works by increasing eligible expenditure of say £100,000, which already receives 100% corporation tax relief, by a further 130% of this amount (£130,000). The company therefore reduces the profits chargeable to corporation tax by £230,000. With a tax rate of 19% the tax reduction is £43,700, rather than £19,000 on the £100,000 spent. In the above example the cash benefit in a profitable company is 24.7% of the amount of R&D spend.
If the company is loss making, the R&D eligible costs can be surrendered for a cash payment. In this example, if there is a taxable loss of £230,000 and the full amount is surrendered, then a cash payment of 14.5% (£33,350) can be claimed.
Eligible activities relevant to a dental practice operating through a company could include:
- development of new/improved patient treatments
- development of new pain management procedures
- trialling new techniques to improve clinical results
- evaluating new materials and processes
- development of practice management systems to create a solution that cannot be purchased off the shelf
Any R&D project should aim to improve existing technology and overcome any technological challenges. Because there are no boundaries to what type of activities might qualify, so long as they meet the over- arching criteria around innovation, it is impossible to list all of the potential areas that might be relevant to
a dental practice. It is often only when the practice engages in discussion with an R&D expert and potential opportunities drop out of the conversation, that qualifying expenditure is identified.
Costs can be eligible even if you pay someone else to undertake the research and development for you. However, most claims include a significant element of staff costs that relate to the proportion of time spent by employees on qualifying activities together with ‘consumable’ costs, such as materials, software, water, fuel and power, that can also be attributed to relevant activities.
To support a claim for the enhanced tax relief, records should be kept of the activities undertaken as well as the results of the project. It does not matter if the outcome of the project means that the activities are not implemented in the future.
If you have any questions or would like to discuss R&D tax reliefs, please contact David Clift on 01242 680000 or email david.clift@hazlewoods.co.uk.