The government rewards investment in R&D with two incentives: -
Research & Development (R&D) Tax Credits
R&D tax credits are a Corporation Tax (CT) tax relief designed to encourage innovation in science and technology. According to HMRC your company can only claim for R&D tax relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability. The project must relate to your company’s trade - either an existing one, or one that you intend to start up based on the results of the R&D.
R&D tax credit expenditure can deliver:
To qualify as R&D, any activity must meet the definitions set out by the Department for Business, Innovation and Skills. These guidelines state that the activity must contribute directly to seeking the advance in science or technology or must be a qualifying indirect activity.
If your company and the project both meet the necessary conditions, you can claim tax relief on revenue expenditure in the areas outlined which can include staff costs, payments to contractors or vendors supplying personnel, software licences and utility costs. If you’ve spent money on something like, for example, staff costs where the employee was only partly engaged on R&D activities, you can claim for an appropriate proportion of the cost.
Research & Development Allowances
R&D allowances are available to all businesses that incur capital expenditure on facilities (including parts of facilities) or assets used for the purposes of their R&D.
Because expenditure on buildings and other structural assets can qualify, RDAs have the potential to deliver both an absolute and enhanced tax saving compared to other types of capital allowance.
R&D allowance expenditure can deliver: -
The expenditure must be incurred by the person carrying on the R&D, for example, a landlord that leases a building to a business that carries out R&D will not be eligible. What constitutes an R&D activity for RDAs is broadly the same as that for R&D tax credits.
We understand that HM Revenue & Customs (“HMRC”) is conducting a review into capital allowances claims for entire R&D facilitiesFind out more