R&D tax breaks
Companies that invent new production methods or products can claim enhanced tax relief for the Research and Development (R&D) costs. The enhanced expenditure scheme for small and medium-sized enterprises (SMEs) increases qualifying expenditure by 130%, so that for every £100 spent, the company enjoys a deduction of £230 from taxable profits.
This may create or increase a tax loss. Where there are no other profits against which a loss generated by R&D expenditure can be set, the loss may be surrendered to HMRC, in exchange for a payable tax credit at 14.5%.
This scheme is particularly useful to start-up companies and those struggling to make profits in their early years. However, it is being amended so that, for expenditure on or after 1 April 2023, the additional deduction will decrease from 130% to 86% and the payable credit rate will decrease from 14.5% to 10%.
It will remain a very attractive tax relief, despite the claims process and conditions being tightened for accounting periods beginning on and after 1 April 2023 as follows:
- The company will need to inform HMRC of its intention to make an R&D claim within six months of the end of the accounting period to which the claim will relate.
- The claim must include details of the advances that the company is seeking to achieve and what uncertainties have been overcome in the R&D project.
- Costs of overseas workers or subcontractors based outside the UK must be excluded from the claim, with limited exceptions
- A senior officer of the company must endorse the claim
- Any agent that advised the company on the R&D claim must also be named within the claim
You can ask HMRC for an advance assurance that your company, and its R&D projects, will meet the requirements. We can help you do this.
The main benefit of advance assurance is that HMRC won’t raise further questions about your initial R&D claim or for R&D claims submitted in respect of the next two accounting periods.
You need to apply for the R&D tax relief within two years from the end of the accounting period in which the R&D costs were incurred. So, if your company has been innovative in the recent past, don’t delay your application for R&D tax relief! We can help you with this.
| Action Point! |
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| Can you incur qualifying R&D expenditure by 31 March 2023, before the tax relief is reduced? |
