This relief has been in existence since 2000, but since 2010 the benefits have been substantially increased, and for every £1,000 spent on R&D by SMEs there can now be an additional tax saving of up to £300 for profitable companies, or a £248 cash payment from HMRC if loss making.
For larger companies, the benefits are much lower – prior to April 2013, there was a potential tax saving of 6.9% and only an enhancement of the losses for non tax paying companies. However from this year the benefit can be accounted for within operating profit rather than in the tax charge – as well as increasing the benefit to profitable companies (to 7.7%), it will make the relief more visible to the board and shareholders, and will also provide for a 7.7% cash refund for non tax paying companies.
These benefits reduce the cost of carrying out R&D in the UK but they are still very much under claimed, due to both a lack of awareness and the misconception that it is too hard to claim.
This is despite numerous HMRC campaigns to raise awareness as they want people to claim – i.e. HMRC want to give cash away.
R&D includes any project that aims to achieve an advance in science or technology through the resolution of scientific or technological uncertainties. The definition is therefore very broad and is likely to encompass some element of the work undertaken by every technology company – if you are not claiming you are missing out on funding that your competitors may be benefitting from.
Although it is true that in the past it has been harder, HMRC have dramatically improved their processes to streamline claims, and as long as you have the support of a tax adviser with experience of R&D claims, the process can be painless.