Five misconceptions about claiming research and development tax relief

Last updated at 01:13, Monday, 26 November 2012

advice: Nigel Holmes, director of corporate tax at Armstrong Watson

Nigel Holmes, Director of Corporate Tax at Armstrong Watson, explains the five common misconceptions regarding R&D tax relief.

This is a very generous corporation tax relief that HM Revenue & Customs actively encourage, in order to stimulate Research & Development (R&D) in the UK.

SMEs can claim an additional 125% relief for qualifying costs; large companies an additional 30% relief. The definition of SME is very wide. Loss making SMEs can surrender the tax losses for cash. For additional information see: http://www.armstrongwatson.co.uk/research-development

The Common Misconceptions

1. We are not doing R&D This is by far the biggest misconception. Many companies do not initially realise that their project is R&D – it may even be a process and not an end product. R&D for tax relief purposes looks for scientific and technological advancements
being made on an industry wide scale. Companies need to think narrower than products and consider projects, i.e. parts of a product or process that could meet the criteria.

2. Claiming the relief is complicated This is not the case if you seek good advice. Whilst the company certainly does
need to get far more involved than they usually do in their tax affairs, which are often left to their accountant entirely, a claim can be easily pulled together by the company’s finance and technical team using an accountant with a good understanding of the relief.

3. The costs of claiming outweigh the benefits This is highly unlikely given how generous the relief is. Some advisers charge a
percentage of savings but most accountants will adopt a more traditional time based approach to costs.

4. We cannot separately identify costs HMRC does not expect the company to reinvent its accounting records to make a
claim and will accept some elements of estimation. This is where an accountant with experience of making claims can assist greatly.

5. We received a grant towards R&D, we cannot have the tax relief too. This is very important. The receipt of a grant may affect how much additional tax relief the company can claim but you can have both!