Research and Development (R&D) Tax Reliefs

shutterstock_84635077The recent budget saw the Chancellor raise the amount of R&D tax reliefs for small and medium sized companies (i.e. companies with fewer than 500 employees) from 225% to 230% from 1 April 2015.

This means a small or medium sized company incurring £100,000 worth of qualifying R&D expenditure would receive tax relief as normal through their accounts for the £100,000 spent together with an additional £130,000 (£100,000 x 130%) tax deduction via their company tax return.

If the company is loss making, the loss can be surrendered for a cash repayment of up to 33% of the qualifying R&D expenditure which is particularly helpful for the cash flow of a fledgling business.

What projects qualify for R&D?

A common misconception is that only larger companies with specialist R&D departments making groundbreaking leaps in the advancement of science or technology will qualify.

However, at PM+M we have made numerous R&D claims on behalf of our clients, of varying sizes and across a number of business sectors.  The R&D projects we see tend to fall into the following areas:

• The integration of two or more existing components/systems to create new assemblies/systems etc.

• The replacement or substitution of one material for another i.e. replacing metal with a more durable substance.

• Develop a system, process, material or device to be: faster, lighter, stronger, cheaper or more accurate.

Basically, if you are doing something that your competitors are not doing and would be impressed by, there is a reasonable chance that it could qualify as an R&D activity.

What costs qualify?

The main cost is usually the salaries of people engaged in the R&D activity, including employer’s national insurance and any pension contributions. Other allowable costs typically include consumables, sub-contractors costs (with some restrictions), software and some utility costs if these can be directly related to the project.

For more information on R&D, please click the button below for a copy of our helpsheet. Alternatively, you can contact the PM+M tax team on 01254 679131 or by email