Innovation and Research & Development tax reliefs
Supporting your innovative company in claiming valuable R&D and other tax reliefs.
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R&D: Could your company take advantage of the UK Government's tax incentives for R&D?
The incentives could lessen your tax burden or give your business a much-needed cash infusion.
The project doesn't have to be successful – failed projects can be great examples of qualifying R&D.
The final product or method need not be entirely original. It may be sufficient to invest in developing a product or service to make it more effective, affordable, or sustainable in order to be eligible for certain R&D support.
R&D tax reliefs support companies that work on qualifying innovative projects in science and technology through access to reduced corporation tax liabilities and payable tax credits.
There are two R&D schemes - one for SMEs and one for large companies (Research & Development Expenditure Credit (RDEC)).
In certain circumstances where your company is a subcontractor, or has received a grant or subsidy to help with the R&D, it may be either wholly under the RDEC scheme (irrespective of the size of the company) or it may be partly under the SME R&D scheme and partly under the RDEC scheme. The two schemes are expected to be merged 1 April 2024 and consultation is ongoing on the new scheme structure.
At present, a profitable company, paying 25% corporation tax could see returns of up to 21.5% under the SME scheme and 15% under the RDEC scheme.
The qualifying conditions you need to meet
Undertaking a qualifying project
Relevant projects must seek to achieve an advance in knowledge or capabilities in the field of science or technology (not just the company's own state of knowledge or capability), and that advance has to be through the resolution of technological uncertainties.
Incurring qualifying costs
Direct and externally provided staff, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief. Subcontracted costs qualify under the SME scheme only.
From 1 April 2024 there is a refocussing of qualifying costs to UK activities so many overseas costs will cease to qualify.
From 1 April 2024 there is a refocussing of qualifying costs to UK activities so many overseas costs will cease to qualify.
Addressing claim administration requirements
For claimants who have not claimed in the past three years, there is a pre-claim notification requirement which must be made within six months of the end of the accounting period. The claim itself must be submitted within two years of the end of the accounting period.
Relevant projects must seek to achieve an advance in knowledge or capabilities in the field of science or technology (not just the company's own state of knowledge or capability), and that advance has to be through the resolution of technological uncertainties.
Direct and externally provided staff, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief. Subcontracted costs qualify under the SME scheme only.
From 1 April 2024 there is a refocussing of qualifying costs to UK activities so many overseas costs will cease to qualify.
From 1 April 2024 there is a refocussing of qualifying costs to UK activities so many overseas costs will cease to qualify.
For claimants who have not claimed in the past three years, there is a pre-claim notification requirement which must be made within six months of the end of the accounting period. The claim itself must be submitted within two years of the end of the accounting period.
Patent Box: Companies that produce revenues from patented products or methods they developed can claim the Patent Box, a 10% rate of corporation tax.
The R&D regime and Patent Box regime complement one another to encourage and support a UK business throughout its entire invention lifecycle.
With the increase in the UK corporation tax rate to 25%, the savings offered by the Patent Box are more attractive than ever.
The qualifying conditions you need to meet
Qualifying company
The underlying Intellectual Property (IP) must be of a qualifying nature e.g. a patent registered with an accredited patent office such as the UK IPO. Companies should take action to understand whether they can qualify for the old and/or new regime and the benefits of each.
Qualifying company
Ownership and development
Substantiate a company's eligibility for Patent Box and that it satisfies the active ownership criterion and the development condition, which are the regime's essential requirements.
Ownership and development
Calculating the R&D fraction
An R&D "nexus fraction" is applied to the calculated relevant IP profits. The nexus fraction will be one (i.e. full relief) where the IP was developed in-house by the claimant company. The fraction will be reduced where development was subcontracted to connected parties or where payments are made to acquire IP rights.
Calculating the R&D fraction
Claiming Patent Box relief
Within two years following the end of the accounting period in which the company earned the necessary income, they must elect to participate in the Patent Box Scheme.
Claiming Patent Box relief
Guide
Corporate Tax Healthcheck
Top tips and advice to ensure your company or corporate group is maximising tax reliefs, cashflow and avoiding tax traps.
Our services can be customised to fit your needs
R&D claim support
We will support you with compiling your claim and submit this to HMRC. Saving time for your team and helping you access the valuable funding.
R&D enquiry support
HMRC are more active than ever on R&D enquiries. If HMRC open an R&D enquiry on your claim, we are here to support you.
Using R&D claims
Under the current regime, loss making SMEs have some choices in how to use R&D tax relief. The tax savings from using your claims can be maximised with our assistance.
R&D claim support
We will support you with compiling your claim and submit this to HMRC. Saving time for your team and helping you access the valuable funding.
R&D enquiry support
HMRC are more active than ever on R&D enquiries. If HMRC open an R&D enquiry on your claim, we are here to support you.
Using R&D claims
Under the current regime, loss making SMEs have some choices in how to use R&D tax relief. The tax savings from using your claims can be maximised with our assistance.
Patent box advice
Our expertise can help you identify whether your company's IP meets the qualifying conditions, and the time periods in which Patent Box can be claimed.
Patent box claim support
Complex criteria and formulas must be used to calculate the amount of taxable profits that must be subject to a 10% tax. Our team can help you navigate these.
Due diligence
Our team frequently review claims for R&D and Patent Box reliefs as part of due diligence on company acquisitions and advise on acquirer protections.
Patent box advice
Our expertise can help you identify whether your company's IP meets the qualifying conditions, and the time periods in which Patent Box can be claimed.
Patent box claim support
Complex criteria and formulas must be used to calculate the amount of taxable profits that must be subject to a 10% tax. Our team can help you navigate these.
Due diligence
Our team frequently review claims for R&D and Patent Box reliefs as part of due diligence on company acquisitions and advise on acquirer protections.
We examine the important issues that will shape the future of R&D tax reliefs and the UK Patent Box. Our thought leaders provide insights on upcoming changes to these important reliefs.
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