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22 March 2019

Research and development (R&D) tax relief was introduced by the UK Government to encourage UK companies to invest in more innovation-focused projects and maintain the country’s position as a global leader in science and technology. The scheme offers those investing in product or process improvements significant tax breaks provided they meet the required criteria. 

There are, however, a number of assumptions and misconceptions about R&D tax relief, which can lead companies to making erroneous claims, which are likely to be rejected, or to not claim at all. To give businesses more clarity on the matter, I’ve exposed some of the myths about R&D tax relief. 

Myth 1: Routine testing does not qualify for relief.  

Provided the routine testing is required to either confirm the resolution of an uncertainty (e.g., to confirm the performance of a newly developed metal coating process) or confirm that an advance in science or technology has been achieved then it can qualify. 

Myth 2: You can not claim relief if you are subcontracted to do work for another company.

It very much depends on who is responsible for identifying and resolving technical uncertainties. If the commissioning company expects your business to identify and resolve technical risks then you would be eligible to claim relief on the associated costs. Likewise, if your business is bearing the financial risk in this process and is expected to incur any budget over-runs or additional expenditure then you may also be eligible to claim subsequent relief.

However, if the commissioning company has already identified the technical uncertainties and has identified how to resolve these, but subcontracts the research activity, then it will be entitled to claim relief on 65% of the subcontractor costs.

Myth 3: You can only claim for successful projects.

The scheme provides relief on eligible R&D activity for projects which seek to resolve technical uncertainty while advancing a field of science or technology, whether they ultimately deliver the sought advance or not.

Myth 4: You cannot claim for projects supported by subsidies or grants.

It is still possible to claim in this situation. SMEs would need to claim relief on some or all of the R&D costs through the RDEC scheme, depending on the type of the grant, where they could effectively secure 9.7% net relief. Not a bad benefit for spending someone else’s money! 

Myth 5: You can claim relief on any costs associated with an R&D project.

Unfortunately, there’s a number of R&D-related costs that are not eligible for tax relief, including market research, professional fees (unless these consultants are undertaking subcontracted R&D activity), business infrastructure, foreign travel and conference expenditure. 

Myth 6: Companies qualifying as SMEs should automatically claim through the SME scheme.

If your company is majority owned by an investor with a portfolio of investments, has a combined footprint of more than 500 staff or a turnover of €100m then you may need to claim R&D tax relief through RDEC scheme.

Sandy Findlay, Partnership Director at R&D tax relief specialists Jumpstart

For more information on R&D tax relief or to make sure you’re claiming your full entitlement, contact JumpStart –  A Make UK Advantages partner  on 0370 218 7226 or email [email protected]