Research and Development Tax Consulting

To encourage innovation, the government has been offering generous tax reliefs for companies engaged in research and development (R&D) for several years now. 

Often an assumption is made that only companies such as scientific or medical research companies are eligible. However, these tax incentives in fact potentially apply to a very broad range of activities and you may well qualify.

Our R&D Consultants get to know your business operations, how you are innovating and work with you to prepare R&D claims and much more: 

If your company is engaged in projects which seek to achieve an advance in overall knowledge or capability in a certain field of science or technology, then you could be classed as being engaged in R&D activity.

Additionally, you do have to be able to demonstrate that the advancement was not readily deductible by any competent professional in the field. In practical terms, a broad range of activities could be included. Some examples are:

The types of costs that can qualify for R&D tax incentives include:

Loss-making SMEs are able to claim up to 18.6p for every £1 spent on qualifying R&D activities.

Loss-making R&D intensive (defined as companies who spend at least 40% of their total expenditure on qualifying R&D) are able to claim up to 27p for every £1 spent on qualifying R&D activities.

Profit-making SMEs are able to claim up to 21.5p for every £1 spent on qualifying R&D activities.

Large companies are able to claim 20p for every £1 spent on qualifying R&D activities.

For Example

Company A (a profit making SME) spends £50,000 developing advanced packaging to further enhance the quality of their product

R&D tax relief will allow an additional £43,000 to be deducted from the company's profit for tax purposes.

This means the overall reduction in the company A's tax bill as a result of the R&D expenditure is up to £10,750.

Changes from April 2024 – the ‘merged scheme’

The current SME and RDEC R&D schemes have merged (with effect of 1 April 2024) into one above the line credit scheme which broadly follows the current RDEC scheme, with a headline rate of relief of 20%.

The 20% credit is taxable, meaning a net benefit of 15% of qualifying expenditure for claimants paying the 25% main rate of corporation tax. For those paying tax at the 19% small companies’ rate or in a tax loss position, the net benefit is 16.2%.

The merged scheme will take effect for accounting periods beginning on or after 1 April 2024 and run alongside the SME R&D intensive scheme.

Other changes

• The subcontracted expenditure rules are significantly changed. Broadly, relief is available to the company that takes the decision to initiate the R&D and bears the risk of failure.

• The existing subsidised expenditure rules for SMEs are removed entirely.

• New overseas expenditure restrictions mean that companies subcontracting R&D activity to third-parties can generally only claim relief if that activity is performed in the UK.

• Similarly, companies utilising externally provided workers can usually only claim relief where they are paid through a UK payroll. Exceptions exist for situations where it is ‘wholly unreasonable’ or impossible to undertake the required activities in the UK.

• A PAYE/National Insurance contributions cap on claims is retained, adopting the more generous rules from the existing SME regime.

• For claims submitted after 31 March 2024, claimant companies can no longer nominate third-parties to receive payable R&D tax credits.

If you would like to know more about whether R&D tax credits are right for your business, visit our article which explains in depth the criteria for eligibility for R&D tax credits.