Money Matters - Spring 2007

Help with claiming R&D tax relief

Photo of laboratory work. The government has opened seven specialist units to help small and medium-sized enterprises (SMEs) claim the enhanced tax relief for research and development costs. The new offices now deal with most claims by SMEs and many claims by large companies.

The purpose of this move is to ensure greater consistency in granting relief and to promote greater take-up of the scheme. The units aim to help companies identify areas of their business that could benefit from R&D relief and to assist them with the application process. R&D tax credits were launched in 2000 but have attracted criticism for being complicated and inconsistently given. Many of the smallest companies remain unaware of the enhanced relief.

The scheme gives small and medium-sized companies tax relief on 150% of qualifying expenditure on R&D. You need only spend £10,000 on research and development in an accounting period in order to claim — and a wide range of projects can qualify. Very broadly, projects qualify if they are intended to increase scientific or technical knowledge, or to create or improve a process, product or service through scientific or technical advances. Expenditure has to be on staff costs or on consumables used directly in carrying out R&D. Small or medium-sized companies can, in certain circumstances, surrender the tax relief to claim payable tax credits in cash.

Capital expenditure does not qualify, although there is a separate 100% capital allowance for equipment used in R&D. Large companies can claim tax relief on only 125% of qualifying expenditure and there are several other differences in the rules.

If you are carrying out R&D, or you are not sure whether you might qualify, do ask us about these tax credits.