R&D tax relief: Making the most of it and big changes ahead
Research and Development (R&D) tax relief is back on the agenda thanks to Rishi Sunak’s recent Spring Statement. But what exactly is it? Are you making the most of it? And what changes are afoot?
Let’s take a look at the tax relief that could play a part in your future growth.
What is R&D tax relief?
R&D tax relief is a government incentive that rewards UK businesses for innovation. If you spend money on developing new products, processes, or services – or enhancing existing ones – you may be eligible for R&D tax relief.
There are two strands to the incentive: the R&D expenditure credit (RDEC) and the SME and the SME R&D tax credit scheme. RDEC is aimed at large companies, although in some specific cases SMEs may need to claim RDEC instead of the SME incentive.
The SME incentive is more generous than RDEC. You could claim back up to 33p for every £1 spent.
You can receive this money in one of two ways: A cash credit or a Corporation Tax (CT) reduction. In most cases, the R&D tax credit you receive reduces your taxable profits. If you are loss-making, however, you can claim a cash credit in some cases.
What are the recent changes to R&D tax relief?
R&D tax relief isn’t new. It has been around for 21 years, and claims are at an all-time high. But there has also been a rise in fraudulent claims which has led to tougher compliance measures from HMRC.
So it’s important to make sure you apply for and use the relief in the right way. HMRC are carrying out more random spot-checks on claims and issuing more penalty notice. The tax authority has also hired an extra 100 R&D tax compliance staff.
That said, the relief is still a powerful, safe way to access funding. If you claim correctly. It's your responsibility to get it right, so you might want to get specialist advice before submitting a claim. Make sure you're prepared for any spot-checks from HMRC.
More changes afoot
There was a recent review and consultation into R&D tax relief that raised the possibility of changes to what you can and can’t claim for. The government is also considering wider structural changes to the scheme.
In his recent Spring Statement, Chancellor Rishi Sunak noted: “We’ll reform R&D tax credits so that they’re effective and better value for money. We’ll expand the generosity of the reliefs to include data, cloud computing, and pure maths. And we’ll consider, in the autumn, whether to make the R&D expenditure credit more generous.”
Watch this space for more detailed proposals on this later in the year.
What counts as eligible R&D?
To be eligible to claim you must be a limited company subject to Corporation Tax and you must have spent money on R&D projects. But what counts as R&D?
According to the 2014 government guidelines it is:
"A project that seeks to achieve an advance in science or technology through the resolution of scientific or technological uncertainty." That phrasing is deliberately quite broad. It’s intended to include all sorts of businesses.
We recently held a webinar with R&D tax relief consultancy ForrestBrown who outlined eight ways you might be carrying out R&D:
- Overcoming hurdles by scaling up your technology
- Designing new cyber-security systems to protect sensitive data
- Introducing new automation technology to streamline processes
- Applying machine learning to analytical problems
- Retrofitting new technology onto old technology
- Creating complex interactive or visual effects
- Developing next-generation or improved products
- Creating extensions for existing tools
How can you maximise your R&D tax opportunities?
ForrestBrown also suggested several questions to ask yourself to identify any untapped opportunities:
- Do you understand which of your projects count as R&D?
- Are you spending too much or too little time on your claim?
- Are you up to date on HMRC's latest approach and any changes you need to make before your next claim?
- Do you understand how your business plan will impact future R&D claims?
- Does everyone in your business understand the commercial value of your investment in R&D?
- Do you understand how your contracts affect your eligibility?
R&D tax relief is a powerful form of funding that can help to accelerate your growth plans.
If you want further support, contact ForrestBrown for specialist help and advice.