The benefits of R&D reliefs
Improving productivity and developing new products, processes and services is at the heart of most successful and growing businesses. It was welcome that the Chancellor's Autumn Statement brought news of increased support for business productivity through innovation.
Innovation is high on the Government's agenda and for those companies investing in Research and Development (R&D), they are rewarded in the form of R&D Tax relief.
There are benefits to both small and large companies. R&D Tax Credits are available for small and medium-sized enterprises (SMEs) while the R&D Expenditure Credit (known as RDEC) provides a benefit to large companies.
The good news (in most circumstances) is that any company subject to UK corporation tax can potentially make an annual R&D claim to HMRC for qualifying activities. The reward may be in the form of a corporation tax deduction or a cash payment.
Unfortunately, evidence suggests most UK companies are not taking full advantage of valuable R&D tax reliefs available and most companies commonly omit to claim substantial benefits because qualifying activities are overlooked. In other words, most companies do not make a claim as they do not realise they are actually performing R&D activities.
For the purpose of R&D tax reliefs, R&D takes place when a project seeks to resolve a scientific or technological uncertainly aimed at achieving an advance in science or technology.
In simple terms, R&D will take place if a company develops something new but this may be as straightforward as overcoming technical problems, improving existing products or making a process more efficient.
Development of software systems may also qualify. Most companies will make improvements or tweaks to purchased software, or build their own, and these should qualify for R&D tax reliefs.
Of course, there must be an element of uncertainty or business risk within the R&D payment, but it is not necessary for work to be successful. It is much more important to focus on the journey as opposed to the finished product or process. R&D should naturally bring uncertainty and will not always succeed, but costs associated with failed attempts should qualify so long as the aim was always to achieve an advance.
Therefore capturing the qualifying costs of the journey whether the outcome was successful or not is just as important.
It is also important to note that costs can include staff costs, consumables such as materials and equipment, overheads such as heat, light and power, and also in some circumstances (subject to conditions) subcontracted support.
It is clear that the Government is actively encouraging R&D, so it is clearly worthwhile to question if a company's expenditure is eligible for these reliefs to ensure that significant R&D tax relief is not lost.
Is it possible that a company may be missing out on this incentive because you do not appreciate that you are performing R&D? Could you be generating some form of innovation, possibly in the form of a new product, business process or service?
Don't miss out on hidden opportunities!
- For further information, Lisa Knipe can be contacted at Lisa.Knipe@ie.gt.com or visit http://www.grantthorntonni.com/ Grant Thornton (NI) LLP specialises in audit, tax and advisory services