Research & Development

Research & Development (R&D) tax reliefs are a very valuable (and often overlooked) tax break. R&D Tax Credits in particular can be a lifeline for the cash-strapped company.

At Hackett Griffey LLP, we have considerable experience of preparing R&D tax relief claims. Since the case of B E Studios Ltd v Smith & Williamson Ltd (2005), HM Revenue & Customs have scrutinised claims much more closely so you need to ensure that your case is robust.

The SME scheme allows for an enhanced deduction against your taxable profits and the possible surrender of the resulting loss for a repayable tax credit and so is particularly valuable.

We have dealt with countless R&D claims. Some of our SME clients have received repayments from HM Revenue & Customs running into hundreds of thousands of pounds.

If you think you are entitled to R&D tax relief, then before we help prepare your claim here are some questions that you need to ask yourself:

Are we trying to do something that involves us having to develop scientific or technical knowledge that isn't commonly available (i.e. in the public domain)?

What are the scientific or technological challenges we had to overcome as part of this work? These have to be uncertainties that competent professionals working in the field cannot readily resolve and where solutions are not common knowledge.

However despite this it can be surprising what does qualify as R&D. It doesn’t always have to be cutting edge science. For example making an existing product smaller or more efficient or greener may qualify.

The expenditure must be revenue in nature. If it is capital then enhanced R&D relief will not be available but 100% capital allowances may be.

The revenue must come within the following headings:

  • Staffing costs
  • Software or consumable items
  • Externally provided workers
  • Subcontractors

This means that common expenditure on items such as rent, insurance, legal and professional fees, advertising and so forth cannot be claimed as they do not fit under any of these headings.

A claim for enhanced R&D must be made on the company tax return within 1 year of the normal filing date.

This covers many grants and may prove fatal to an SME R&D claim, however small the grant, although a claim under the ‘large company’ scheme for R&D Expenditure Credits (RDEC) may still be possible although this is usually far less valuable. You may need to check with the grantor whether it is a notified state aid.

Please contact us for further information and advice.