R&D tax relief - quick guide for agencies

I've been lucky enough to meet some experts in this area over the last few months so I thought I'd pass on what I've learnt. There are some fantastic tax breaks for qualifying businesses and naturally this has gained a lot of media interest.  Here are some headline pointers:

1. How does it work?

The company gets an enhancement on the actual expenditure it incurs on R&D, therefore reducing the taxable profits (or increasing the taxable losses) so saving the company corporation tax at the current tax rate, or

If the company is making losses and would like to claim a tax credit, the enhanced losses can be surrendered for cash.

2. What benefit is there?

The scheme for SME's gives a 225% tax deduction for every £1 of qualifying expenditure.

3. Who can qualify?

SMEs defined as fewer than 500 people and an annual turnover less than €100m (most of you!)

4. Does all R&D qualify?

Sadly not, there are some pretty strict criteria!

5. What's the qualifying criteria?

You can't just create any piece of software or IP and have it class as qualifying, for example any IP that mimics an existing offline 'paper' process, user interface, reporting tools, etc.

Qualifying criteria covers areas such as:

  • What were the scientific or tech uncertainties involved?

  • What is the scientific or technological advance?

  • How were these overcome?

  • Why wasn't the knowledge being sought from a competent professional, has this problem been solved before and is it available in the public domain?

There is also a bunch of qualifying indirect activities e.g. training.

6. Anything else to take into account?

Qualifying expenditure covers areas such as employee costs, external workers, subcontracted R&D and software used directly on the R&D. There are additional criteria for externally provided workers and subcontracted R&D

Finally, if you're considering making an application it's wise to get some expert advice from a tax specialist beforehand. They can help you with your submission and maximise your chances of a successful application.

Good luck!

This post was originally posted on TheDrum.com. Here's the link: