What is R&D Tax Relief?

R&D tax relief supports companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field, but many businesses owners are not aware that they can claim.

Who can claim R&D tax relief?

Small-medium sized businesses that undertake can claim R&D tax relief if:

  • They have less than 500 staff
  • They have a turnover of under €100m or a balance sheet total under €86m

It’s worth noting that if your company has external investors, this can affect your SME status.

SME R&D relief allows companies to:

  • Deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
  • Claim a tax credit if the company is loss-making, worth up to 14.5% of the surrenderable loss

R&D costs you can claim

You can claim certain costs on the project from the date you start working on it until you develop or discover the advance or the project is stopped.

Employee costs

For staff working directly on the R&D project, you can claim a proportion of their:

  • Salaries
  • Class 1 National Insurance contributions
  • Pension fund contributions
  • Administrative or support staff who work to directly support a project. For example, human resources used to recruit a specific person to work on the project. You cannot claim for clerical or maintenance work that would have been done anyway, like managing payroll.

You can claim 65% of the relevant payments made to an external agency if they provide staff for the project.

Subcontractor costs

You can claim 65% of the relevant costs of using a subcontractor for your R&D activities.

Software

You can claim for software licence fees bought for R&D and a reasonable share of the costs for software partly used in your R&D activities.

Consumable items

You can claim for the relevant proportion of consumable items used up in the R&D. This includes:

  • Materials
  • Utilities
  • Clinical trials volunteers
  • For R&D projects in the pharmaceutical industry, you can claim for payments made to volunteers involved in clinical tests.

Costs that cannot be claimed

You cannot claim for:

  • The production and distribution of goods and services
  • Capital expenditure
  • The cost of land
  • The cost of patents and trademarks
  • Rent or rates

How to claim R&D relief

You can make a claim for R&D relief up to 2 years after the end of the accounting period it relates to.

You can claim the relief by entering your enhanced expenditure into the full Company Tax Return form (CT600).

To calculate your enhanced expenditure you need to:

  1. Work out the costs that were directly attributable to R&D.
  2. Reduce any subcontractor or external staff provider payments to 65% of the original cost.
  3. Add all the costs together.
  4. Multiply the figure by 130% to get the additional deduction to put into your tax computations.
  5. Add this to the original R&D expenditure figure to get the enhanced expenditure figure which you can enter into your tax return.
  6. If you make a trading loss, you can choose to surrender this and claim a tax credit.

If you have any further questions please don’t hesitate to contact one of the team.

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