Research & Development – A valuable tax relief – Are you missing out?

Many companies are still unaware of the valuable benefits of the Research and Development (R&D) tax relief. It is surprising how many businesses who are eligible for this tax relief, still do not make a claim.

Based on our experience, the main reasons for companies not making a claim are:

Lack of awareness

In our experience, some companies are still are not aware of this valuable tax relief, even though this has been around since 2000.

They do not believe they qualify

Typically, companies consider their development work to be “just part of their routine duties” which of course is an understandable misconception. Many companies do not realise that they are in fact performing R&D as they may be improving an existing product or carrying out an activity that they have not done previously; they do not appreciate that the work involved in making those improvements could be considered to be R&D for tax purposes.

Based on our experience, if a company is involved in any of the following, it may be possible that the company is likely to be undertaking R&D:

  • Developing new, improved, or more reliable products and processes
  • Bespoke niche solutions for clients
  • Developing prototypes or models
  • Experiments with new materials
  • Develop custom software or implement new systems
  • Automate internal processes
  • Employ external consultants and subcontractors

They think it will be too difficult to make a claim

We work alongside our clients to project manage the whole process of the R&D claim. This will typically involve meeting the company to help identify the qualifying projects and the associated costs, preparation of a detailed report and then onward submission of the claim to HMRC. Our experienced team ensure that the time commitment required by client teams is minimised.

How the R&D tax relief can save you cash

The relief works by enhancing the amount of qualifying costs that the company incurs on relevant projects. Effectively, the additional relief reduces the taxable profits of the company and in turn the amount of Corporation Tax the company pays. Loss making companies can surrender some of these losses and in return obtain a payable tax credit.

For example:

If a company identified that £100,000 salary and Employers NIC costs in respect of its engineers directly related to qualifying projects, the R&D tax relief would enhance these costs to £230,000 (230% x £100,000). This additional relief will reduce the company’s profits by £130,000 and save corporation tax of £26,000.

Our approach

We have an excellent track record in making successful R&D tax relief claims for companies and have generated significant tax savings for our clients. We aim to make the process as seamless as possible so that the key information can be collated in an efficient and timely manner.

If you are not currently claiming R&D tax relief please do get in touch with a member of the Baldwins tax team, who would be delighted to assist you.