Although not new, R&D relief remains one of the most generous forms of Government funding. Aimed at innovative businesses, the relief offers either tax credits (with HM Revenue & Customs paying cash to the company) or reduces a Corporation Tax liability. However, it is still widely misunderstood and as a result remains underutilised.
R&D relief is available to a wide range of industries, including companies in the PropTech, fintech and biotech sectors. We have also seen many successful claims made by businesses in retail, hospitality, manufacturing, construction, and architecture, among others.
A company qualifies for relief when it undertakes a project that seeks an advance in science or technology, through the resolution of uncertainty. Such uncertainty exists when knowledge of whether something is possible or feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.
Whilst this may sound like a high bar to overcome, many more activities and projects fall within the definition of R&D than you might expect, and the relief is not only for large pharmaceutical or technology companies.
Often part of a commercial project will involve technologically innovative work, and this part can be viewed separately within the larger project, eligible for R&D relief in its own right.
R&D relief for SMEs is calculated on the amount of qualifying R&D expenditure that the company has incurred. The relief gives a tax deduction equal to 230% of the qualifying R&D expenditure.
Where a company has tax losses as a result of the R&D claim, it can surrender those losses to HMRC in exchange for a 14.5% cash payment.
This corresponds to cash payment of £33.35 for every £100 of qualifying expenditure incurred, meaning the tax authorities are funding one third of your R&D costs.