What does this mean? well simply if you spend £100,000 on qualifying R&D you get tax relief on £175,000.
For companies not making profits, it is possible to use the relief against the PAYE tax to create a cash refund.
What R&D activity qualifies for the incentive?
The definition of qualifying R&D activity is wide-ranging and sometimes challenging to apply in practice. HM Revenue & Customs (HMRC) and the Department of Trade and Industry (DTI) have issued guidelines to help companies identify their eligible activity.
The activity has to:
- constitute an advance in the field; and
- resolve scientific or technological uncertainty.
And it is worth noting the following points:
- A project does not have to result in a success to qualify for the incentive.
- SSAP13 disclosure is not an essential prerequisite for a claim.
- R&D is not just done in laboratories: for example,engineering can qualify, as can back-office software infrastructure projects or improvements to manufacturing processes.
- R&D activity need not be undertaken in the UK to qualify.
What R&D costs are eligible for the incentive?
There are four main categories:
- Staffing costs – salary, national insurance costs, pension contributions (and benefits in kind, for a limited period).
- Consumable and transformable materials – materials consumed/transformed in the R&D process, software used directly in the R&D and limited overhead payments for power, fuel and water.
- Externally provided workers – agency staff and workers provided by group employment companies.
- Payments to qualifying bodies/contributions to independent R&D efforts.