Welcome to Hamilton Blake Consulting’s guide to research and development (R&D) tax relief.
R&D tax relief is one of the most lucrative, yet under-utilised tax incentives. There are over 2.1M SMEs in the UK, and less than 5% of them claim R&D tax relief.
Launched by HMRC in 2000, R&D tax relief intends to stimulate the economy by encouraging innovation among UK businesses. By allowing businesses the chance to reduce their corporation tax, they may be more inclined to engage in the risk-taking involved in research and development.
This guide will explain the UK R&D tax relief incentive, what activities count as R&D, and how businesses can work with an R&D adviser to claim this tax relief.
- What is R&D
- What is R&D tax relief
- What counts as a qualifying R&D cost, and what doesn’t?
- What businesses qualify for R&D relief on their corporation tax?
- How does the R&D tax relief process work?
- Why choose Hamilton Blake Consulting?
What is R&D?
Most people know that R&D stands for research and development. However, the definition is a little more specific for tax purposes.
HMRC’s definition of research and development refers to work on an innovative project that advances science or technology. In order to claim R&D tax relief, you must be able to prove that the project overcame a technical uncertainty, where the answer wasn’t readily deducible to a competent professional.
What is R&D tax relief?
If a business can prove they’ve completed a project that fits the above definition of R&D, they may be eligible for a reduction or refund on their corporation tax.
A business can claim a refund for historic R&D projects (from the last two years), or submit a claim at the end of its financial year for a reduction in its corporation tax.
The amount and type of R&D relief your business may be eligible for depends on the size of your company:
- SMEs can deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- Larger companies may be eligible for a tax credit worth 12% of the company’s qualifying R&D expenditure
The ins and outs of the R&D relief incentive may sound complicated, but you don’t need to worry about the specifics. Your R&D adviser will be able to guide you through your business’s eligibility, as well as submitting a report to HMRC on your behalf.
What counts as a qualifying R&D cost, and what doesn’t?
In order to claim this tax relief, you need to be able to tell HMRC exactly how much you have spent on research and development.
Qualifying R&D costs include:
- Employee costs: salaries, National Insurance contributions, pensions
- Subcontractor costs
- Consumable items: materials, utilities
- Clinical trials
However, HMRC stipulates that the following do not count towards a business’s R&D costs:
- The production and distribution of goods and services
- Capital expenditure
- The cost of land
- The cost of patents and trademarks
- Rent or rates
What businesses qualify for R&D relief on their corporation tax?
There’s a misconception that R&D only happens among scientists in white coats working in a lab. In fact, most innovative research and development is conducted by companies that aren’t R&D specialists.
Businesses from any sector may be eligible for R&D tax relief. In fact, it doesn’t matter what sort of business you are, at all: it’s about the projects you work on. However, there are R&D tax advisers that specialise in certain sectors. For example, Hamilton Blake Consulting specialises in R&D advice for architects in engineers.
Here are just a few sectors likely to conduct R&D without even realising it:
- Software development
- Development of innovative recipes/formulas
- Development of new materials
- Improved processes
- Development of new products
How does the R&D tax relief process work?
Different advisers may have their own process for supporting clients through the R&D relief journey. But, here’s how we do things at Hamilton Blake Consulting:
- Introductory call
We begin all client relationships the same: with a casual chat to make sure our services are right for you. We’ll find out a bit more about your business, and establish whether any of your projects are eligible for R&D corporation tax relief.
- Onsite working meeting
Whenever possible, we like to visit our clients in person. We’ll spend 2-3 hours in your offices, discussing relevant projects from the last two years. A partner from Hamilton Blake Consulting will be present to take notes and ask questions that will form the basis of our report.
- Transfer of information
To prepare the report for HMRC, we’ll need you to provide us with certain information and documents about any R&D projects. Usually, this will be things like timesheets, but we’ll inform you of the specifics. We never ask clients to prepare any reports or keep additional records. However, you will need to know the dates that the project started and ended.
- Creating and submitting the report
We will compile a report for HMRC that clearly demonstrates the elements of R&D within our client’s project. This is reviewed by a partner at Hamilton Blake Consulting and signed off by our client before submission.
Thanks to our expertise and attention to detail, Hamilton Blake Consulting has a 100% success rate. However, if HMRC queries any claims (which they are entitled to do so), we will defend them at no extra cost to the client. After submitting an initial R&D claim, we work with our clients throughout the year to make the process of claiming future R&D relief easier.
Why choose Hamilton Blake Consulting?
We help over 130 clients annually achieve over £8 million in reclaimed tax.
Our clients hail from a range of sectors, but we’re specialists when it comes to R&D in architecture, engineering, design, and construction. This specialism helps us make life easier for our clients: simply tell us about your projects, and we’ll spot the research and development. We also operate on a contingent fee model: our clients only pay once they’ve received their R&D relief payment.
We’re immensely proud of our 100% success rate and our ability to communicate effectively with HMRC. Just 1.8% of our claims have ever been queried, which is well below the 9% national industry average.
Above all else, we take pride in our personal approach. Each of our clients has direct access to a partner at Hamilton Blake Consulting should they have any questions, and we aim to meet clients face-to-face where possible. Its this trusted adviser service that keeps our clients coming back.
Think your business might have completed a research and development project in the last two years? Get in touch to arrange a call with an adviser at Hamilton Blake Consulting.