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Research & Development – Extreme tax relief!

Top question at the Tax Nerds’ Quiz:  On what type of expenditure can you claim tax relief at 225%?  Answer:  Qualifying research and development (or R&D as it’s generally known).

The eagle-eyed will have spotted a key word: qualifying.  Not all research and development expenditure attracts relief.  And not all claimants attract that level of relief!

So here are some of the criteria you might want to know straight away:

  • Only companies can claim R&D relief (We’re mildly surprised no enterprising sole-trader, partner or member of an LLP has tested this principle at the European Court of Human Rights…).

  • Small or medium-sized enterprise (SME) can claim tax relief at the full 225% rate.  Larger companies can still claim, but will only receive relief at 130% of relevant expenditure.  An SME is a company or organisation with fewer than 500 employees and either an annual turnover of no more than €100 million or a balance sheet not exceeding €86 million.
  • You can only claim R&D relief if the R&D project is directly related to the company’s trade.  More particularly the research must seek to achieve an advance in overall knowledge or capability in the field of science or technology, through the resolution of scientific or technological uncertainty.  It’s not enough for the company to advance its own state of knowledge or capability, or to use a widget for some purpose that no-one else has previously thought of!  However, the relief is not restricted to cutting-edge science laboratories – many of our client claimants are in the software market.  And it is worth noting that even abortive R&D expenditure can potentially qualify for relief – the goal does not need to be attained!
  • Relief will only apply to staff costs, consumables and sub-contracted R&D costs incurred in the research.

Despite the conditions, the rewards are great.  So if you think you may have some qualifying expenditure it is well worth checking with an expert.

Even if you qualify for R&D relief, it may not always be easy to evidence it, or indeed quantify it, from normal business administrative and accounting records.  It will usually make sense to overview the record-keeping aspects from the outset of a project, to ensure the format of the records facilitates quick and cost-efficient extraction of required information.

Finally, for those with some prior knowledge, it used to be the case that the company had to become the owner of the intellectual property resulting from the R&D before relief would be granted.  That is no longer so.  This opens the door to relief even where the IP will end up being owned by someone else  –  perhaps a separate IP company or LLP, or even by a director of the company, personally.


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