Tax Series: Could Your Business Be Entitled To 225% Research & Development Tax Relief?

Nov. 12, 2013, 11:09am

Calling all innovative SMEs, are you being over generous to the taxman and missing out on claiming research and development Corporation Tax relief?  In our first blog within the tax series, covering a number of topics about maximising your relief entitlement, we will breakdown how your business could take advantage of the amended research and development scheme.

It is believed thousands of enterprises are under-utilising the research and development tax scheme and have collectively lost out on more than £10bn* relief since its original introduction in 2000.


Any SME that spends money trying to improve a product or service through technological and scientific advance, using qualified staff and appropriate project controls, and where there is doubt about the project’s success, maybe eligible to claim.


What does this really mean?  Since changes in April 2012 small medium sized enterprises with less than 500 employees and turnovers not exceeding £100m or balance sheets of £85m have been able to deduct up to 225% of qualifying research and development expenditure when calculating their profit for tax purposes.


Simply put the tax relief on allowable research and development costs is 225%, that is for each £100 on qualifying costs the company could have the income of which Corporation Tax is paid reduced by an additional £125 on top of the £100 spent.  If instead there is an allowable trading loss for the period, this can be increased by 125% of the qualifying costs – so that is £125 for each £100 spent.


If the company makes a loss, it can choose to receive tax relief by way of tax credits – a cash sum paid by HMRC subject to several restrictions.


How can you take advantage of the relief?  A relief claim can be made in the Company Tax Return annually, and the good news for businesses that haven’t claimed for eligible costs previously is that claims can be made up to two years after the end of the relevant Corporation Tax accounting period.
Knowledge is power, so understanding what costs qualify prior to making a claim will ensure the highest amount of relief.  All allowable costs must be directly associated with the research and development project but can cover a broad spectrum including –


§  Staff providers – paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out research and development.


§  Materials – consumable or transformable materials used directly in carrying project.


§  Payments to clinical trials volunteers – the cost of relevant payments to subjects of clinical trials.


§  Utilities – power, water, fuel used directly in carrying out research and development but not telecommunication and data costs.


§  Software – computer software used directly for project.


  • Subcontracted expenditure – if your company or organisation is claiming relief under the SME Scheme, then you may be able to claim back 65 % of what you spend on certain research and development activities carried out for you by a subcontractor.


To learn more about claiming research and development tax relief visit or contact 01642 878555.


*Brian Williamson, Real Business, September 23rd 2013.

— Tindles

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