RESEARCH & DEVELOPMENT MARCH 2019
WOULD YOU R&D CREDIT IT?
Manufacturers are reaping the rewards offered
by R&D relief credits. For those who aren’t doing
so, now is the time to take advantage
BY ADAM BERNSTEIN
There’s a saying – don’t let the tax tail wag
the investment dog. In other words, it
doesn’t always make sense to follow a
particular course of action because the
tax system seems to make it worthwhile.
That said, a business may be involved with
research and development (R&D) – and it may be
eligible to claim R&D tax relief on the costs.
Yen-Pei Chen, manager of Corporate Reporting
and Tax at the ACCA, an accounting professional
body, has seen the number of R&D relief claims
from companies both large and small increase
massively in recent years. “Data published by
HMRC in September (2018) shows a doubling
from 2013-14, to 43,040 claims in 2015-16 (https://
bit.ly/2DA6Ide), with claims for 2016-17 already
totalling nearly £3.5bn. The majority (more than
34,000) of the claims have been made by SMEs.”
She adds: “If you haven’t already, it’s worth looking
at the kind of R&D activities your business is
undertaking, to make sure that you’re not missing
out on potentially large tax deductions, or even a
refund from the taxman.”
The R&D reliefs regime is a core part of the
government’s drive to encourage innovative
businesses in the UK. Claiming them isn’t simple,
but compared to other aspects of our centuries-old
tax legislation, R&D tax
credits are relatively friendly.
Who’s eligible for
R&D tax credits?
Statistically, R&D relief is by
no means reserved for large
companies. Chen notes that
there are two types of relief:
● SME R&D relief for SMEs
with under 500 staff, and either
a turnover of under €100m or
a balance sheet total of under
€86m. The SME tax credit gives
a total 230% deduction on
qualifying R&D expenses.
● Research and development
expenditure credit (RDEC)
for large companies, as well
as SMEs, who have been
subcontracted to carry out
R&D work for large companies.
Having replaced the large
company R&D scheme in 2016,
Chen explains that RDEC
is calculated at 11% of the
qualifying R&D expenses.
The majority of the £3.5bn in R&D tax credit claims
made in recent years have come from SMEs
But there is a word of caution:
if a company is backed by
external investors or is part of
a group, its eligibility for SME
relief could be subject to rules
for linked or partner companies.
Further, Chen says that if State
Aid is received for an R&D
project it would not be eligible
for SME relief – although it could
still qualify for RDEC.
What kind of activities
qualify as R&D?
Although the two reliefs are
calculated differently, they share
many of the same basic rules
on qualifying activities and
“The statute books are
unequivocal on expenses,” says
Chen. “To qualify for R&D relief,