Research & Development Tax Relief

If you have spent money on qualifying innovative activities in the past two years you can reduce your company’s corporation tax bill by an extra 130% of the amount you spent on the innovation .

Under these rules at the most simple level for every £1 on R&D activities spent you will receive 26p in tax relief. A loss making business also has the opportunity to claim a tax credit back from the government of up to 33.35% of the money spent on R&D activities.

A profit making business will be able to claim the 130% enhancement which will save them an extra 26p in tax for every £1 spent.

Profit Making Business Example:
Your company makes a profit of £30,000 but spent £20,000 in R&D costs.
£20,000 x 130% = £26,000 to be taken off of your profit.
Profit £30,000 -  R&D £26,000 = £4,000 profit to be taxed normally.

In this example the R&D 130% enhancement has reduced your profits from £30,000 to £4,000. This means that your corporation tax bill has reduced from £6,000 to £800 which is a tax saving of £5,200!

When a company makes a loss relating to R&D they can choose to either carry forward or carry back that loss as is normally the case with losses but they also have the opprtunity to claim a cash credit of up to 33.35p per £1 spent on R&D activities.

There are various costs that can be claimed for, some of which you may not think of. Below are a list of the various costs that relief can be claimed on:

• Staff costs (Salary, Employer’s NI & Pension contributions)
• Any materials consumed during the R &D process (you can also include a proportion of your Light & Heat costs and your water rates)
• Subcontractor costs (65% is allowed if they are an unconnected person)
• Agency provided workers (65% is allowed if the agency is not a connected entity)
• Cost of the software used for the R&D process

Other expenditure such as travel & subsistence, car hire & motor costs, telephone etc would not be allowable for R&D tax relief purposes