How R & D tax relief can cut your costs

10 June 2016

In the current economic climate companies are increasingly looking for ways to cut their costs. One option, where you are eligible, is to make a claim for Research & Development (“R & D”) Tax Relief.

What sort of cost cutting is available with a claim? Well, if your company comes within the definition of a small and medium-sized entity (“SME” and, for R & D tax relief purposes, this includes a company/group with less than 500 employees) then, if you are profitable, for every £10,000 of eligible expenditure your costs will effectively reduce to £5,400 when the saving in your tax bill is taken into account - an effective 46% reduction in your costs.

On the other hand, if your company is currently loss-making such that you are not due to pay any Corporation Tax, you can still surrender losses generated by your R & D activity and get a payment from HM Revenue & Customs. The impact is that for every £10,000 of eligible expenditure you get £3,350 paid to your company post the claim - an effective 33.35% reduction in your costs.

What if your R & D activity is funded, or your company/group is too big to qualify as a SME? There is a separate R & D relief available which will reduce your tax bill (or produce a payment from HM Revenue & Customs) of £880 for every £10,000 spent: an effective reduction of 8.8%. Admittedly not such an impressive cost reduction where your Company is not eligible for full SME relief, but this could still be claimable even when your R & D is fully funded

You may not consider that what you are doing is eligible for R & D tax relief. We’re looking here for activity which is attempting to make an advance in science or technology thereby extending the overall knowledge or capability in your industry through, for example: trying for greater efficiency, less waste, higher performance, increased speed, lower cost or better security. We’re also looking for something which a specialist in your field would find difficult to do: there must be a risk that your particular project might not work.

You may have incurred capital expenditure to allow you to carry out your R & D activity. Special relief is also available for these costs.

The perceived complexity of the rules may also be putting you off from making a claim. An experienced professional advisor will be able to assist you with your claim and simplify the process for you.

Making a claim will result in your colleagues involved in R & D help to pay for themselves, for activity they’re already involved in, with very little additional work required.

These rules can be complex but the savings can be substantial. Contact Moira Kelly for more information +44 (0)1224 049742, moira.kelly@aab.uk

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