R & D Tax Relief for SMEs

ScotiaAccounting  |  16th February

If your company is liable for corporation tax you may be able to claim a relief or, in some cases, a cash payment if your company took part in any research and development which is deemed as an advancement in technology and/or science.

A lot of companies do not know that this relief is available to them because they are under the preconception that their company must be specific to R & D. However, since launching in 2000 more than £9.5 billion has been claimed on over 100,000 claims so it is widely available (as of August 2014).

You can make the claim on your company’s CT600 form.

The claim is based on the  revenue costs incurred by your company that were spent on research & development. These qualifying costs can include:

  • Employee costs
  • Subcontractor costs
  • Consumables & materials
  • Utilities
  • Software

Ensure you keep sufficient recordings of all qualifying expenditure and that it can be made available to HMRC.

The relief itself is at a rate of 125%. Therefore if you have qualifying expenditure of £30,000 and a taxable profit of £37,500 you can reduce the taxable profit to nil (£30,000 x 125% less £37,500).

The relief can be offset against taxable losses also. Using the above example, if your company made a tax loss of £10,000 this can be adjusted to a loss of £47,500 (£10,000 plus £37,500). This loss can then be carried forward to write off future taxable profits.

Alternatively a company may wish to claim for an actual cash payment made to them by HMRC. This can happen if the company posts a tax loss (including R & D relief) and has liabilities of PAYE & NIC. The cash payment is limited to the amount of PAYE & NIC liabilities held.

To make any R & D claim we would advise to communicate your claim to HMRC prior to submitting your company’s tax return. Although this is not required by law research shows that it does make a smoother claim process as it removes any ambiguity.

If you would like to discuss this in more detail or require assistance with a claim you can get in touch with us here.