Research and Development (R&D) Tax is no longer just available to those who are developing cutting edge innovation. It is now applicable to a much wider range of industries and situations that you may be able to make a claim and save some significant amounts of tax.
R&D expenditure is a government incentive to encourage businesses to invest in improving their products or their business.
A successful claim reduces the Corporation Tax a business pays. For example, a business which spends £100k on qualifying R&D expenditure can secure tax relief of £44k, compared to just £19k on other expenditure. Any business developing systems, processes or products can potentially make a claim.
New rules did come in effect from 1 April 2021 which can add complexity, but relief can still be utilised.
The key is to think of the tax relief as an incentive for ‘IDEAS’ that you come up with which help you to improve the business efficiency, for new products and services, or potentially just to improve profitability. So what sort of costs can be included?
- Employee costs and subcontracted costs (the latter restricted by 35%) for time spent on R&D matters.
- Materials – Consumable or transformable materials, that are used in product design etc.
- Utilities – Premises based costs such as power, water, fuel etc. Based on the space used for R&D activities.
- Software – Computer software used directly in the R&D processes.
This list is much longer, and will vary for each type of business, so try not to make any assumptions about what will and will not qualify. For example, in our property construction clients we might consider…
- Overcoming site or conservation issues.
- Developing or using new or “greener” products.
- Improving building methods or techniques.
- New energy saving techniques.
- Improving site safety.
- Creating, or experimenting with, new materials.
- Integrating new or improved technology into buildings.
The key is that many businesses are already doing these things as part of improving and developing their business. Problem solving is an everyday issue for most clients, but careful analysis of the spend, a clear description of the work done and the objectives and benefits may often lead to a much greater tax saving on money you have already spent.