Research and Development Tax Consulting

Lovewell Blake Tax Partner Mary Schofield

Collaborating with you to identify qualifying R&D spending and maximise the relief to the benefit of your business.

Lovewell Blake Tax Partner Mary Schofield

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.

Even if you are not yet making a profit you can benefit from the relief too.

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:

  • Creating a new product, process or service

  • Changing or modifying an existing product, process or service

  • Improving an existing product

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

  • Staff costs including salaries, employer’s NIC, pension contributions and reimbursed expenses.

  • Costs of subcontractors or externally provided workers assisting the R&D (usually restricted to 65%)

  • Some types of software

  • Materials and consumables including heat, light and power that are used up or transformed by the R&D process.

It may well be that your company is already engaged in some of these activities and you could qualify for this generous incentive. Small and medium sized companies are eligible to claim an additional 86% tax relief on all qualifying expenditure.

How do R&D Tax credits work:

R&D Tax credits are based on the Company’s spend on R&D activity. Once the expenditure is calculated, it is uplifted by the relevant rate (see below).

Once deducted from your taxable profits, or added to your loss it results in:

a) A corporation tax reduction is you are profit making

b) A cash credit if you are loss making (and you elect to receive the cash)

c) A mixture of a) and b)

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.

CompanySME R&D tax creditRDEC
Loss making SMEUp to 18.6%20%
Loss making 'R&D Intensive' SMEUp to 27%20%
Profit making SMEUp to 21.5%20%
Large companyn/a20%

How can Lovewell Blake help?

Our R&D consultants have built up a considerable amount of R&D consultancy experience since the incentives were first introduced by the UK government at the turn of the millennium.

We provide R&D guidance to companies of many different sizes, across multiple sectors claim tax relief on their R&D expenditure. Get in touch to speak to one of our R&D specialists.

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.

CompanyMerged schemeSME intensive scheme
Loss making SME16.2%n/a
Profit making SMEUp to 16.2%n/a
R&D Intensive' SMEn/aUp to 27%
Large companyUp to 16.2%n/a

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.

Ben Howes, Lovewell Blake

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