Bridging a gap in knowledge could bring huge relief

If you thought that R&D meant lab coats and test tubes, it’s time to think again – the definition is far broader. And HMRC actually wants you to ask for the tax relief.

Research & Development. The words sound lofty and conjure up images of multinational pharmaceutical businesses. The reality, however, is that R&D takes place in all kinds of settings – from software and technology companies through to the food and beverage industry. In fact, even if you’re a specialist butcher investigating new seasoning mixes for your sausages, you have a perfectly legitimate case. According to HMRC, however, as few as 25% of businesses entitled to support actually claim it.

As an accountant, when I’m speaking to my clients, I’m always looking at the work that they’re doing within their business and posing the question about R&D relief. I can then help them to construct a detailed report, outlining the case, which is simply returned alongside their Corporation Tax return.

You certainly need to gather data to make your claim. HMRC will want to see evidence, for instance, of the number of hours worked by key staff on the project. The effort is well worth it though, because for every £100 a small or medium company spends on R&D, it receives £225 of tax relief.

For a government agency which is usually so focused on recovering tax, the Revenue’s encouragement for people to make claims is somewhat surprising. The government, naturally enough, is keen to promote innovation as a general motor for the economy. That means there’s effectively a pot of money there – in the form of a tax incentive – for people who are ambitious enough to pursue it.

Critically, your R&D doesn’t need to produce concrete results. It’s the fact that you’ve made the attempt to fill a gap in knowledge or technology that’s important. You simply need a problem and a methodology to tackle it.

Of course, if you’re not actually aiming to make an advance, but merely developing an existing product, you’re not going to qualify. But it’s worth sitting down with your accountant and looking at the way in which you could take advantage of what is very generous tax relief for doing something that is going to benefit your business anyway.