R&D Relief for Coporation Tax

Overview of the relief

A company can claim R&D tax reliefs on expenditure incurred on a R&D project provided it meets the qualifying criteria.

The reliefs can only be claimed by companies. There are different schemes dependant upon whether the claimant is an SME or not.

 

Qualifying R&D project

Generally speaking, a project will qualify as R&D if it aims to advance the overall knowledge or capability in a field of science or technology where there is scientific or technological uncertainty. A qualifying project could create or significantly improve a process, material, device or product which increases knowledge or capability in a field of science or technology.

 

There is a common misconception that qualifying activities are limited to pure research by technicians in laboratories; this is not the case. Any kind of innovation may constitute qualifying activities. If the answer to any of the following questions is yes, then a claim may be possible:

  • Have you automated previously manual processes?
  • Have you modified manufacturing processes, maybe for specific customer requirements?
  • Have you developed new products or upgraded/refined existing products?
  • Have you devised bespoke software for a particular purpose?
  • Do any of your technical staff undertake research/problem solving?
  • Are you market leaders in your field?
  • Have you created patents over any of your products?

 

Qualifying expenditure

To qualify for the tax reliefs, expenditure must meet the conditions set out below:

  • The expenditure must be revenue expenditure, used directly in carrying out R&D.
  • Expenditure must total at least £10,000 in an accounting period.

Expenditure must be on:

  • Staff costs (including employers pension and employers NI, but not benefits in kind)
  • Externally provided workers, eg agency staff (65% allowable)*
  • Consumables used directly in the R&D process
  • Power, water, fuel used directly in the R&D process
  • Computer software
  • Subcontracted R&D costs can be claimed (65% allowable)*

*Different rules apply where there are connected parties