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Research & Development: Can You Benefit? (Uk)

The Government is continuing to promote research and development (R&D) with a range of tax incentives.

R&D capital expenditure is liable to an automatic 100% deduction under capital allowances so it is worth considering the possible benefits to your business.

There are two schemes, one for large companies and one for small and medium sized enterprise (SME) companies. Both schemes provide two main elements of relief: an increased deduction for R&D revenue spending, and a payable R&D tax credit for companies not in profit.

These schemes focus on qualifying revenue expenditure and are only available to companies. The SME deduction scheme will be the most generally used.

The SME scheme

The R&D relief increases the amount your business can obtain in tax relief from the normal 100% deduction to 230%. This means that for every £100 of qualifying costs, your company could reduce your Corporation Tax by an additional £130 on top of the £100 spent.

If the impact of this revenue deduction is that the company incurs a loss which it cannot relieve until a future period, then it may be possible to convert to a repayable tax credit.

Key conditions

As an SME you must first be sure that HM Revenue & Customs (HMRC) will accept that the activities undertaken constitute R&D. Your R&D does not have to be undertaken in the UK in order to qualify.

You must also make sure the relevant tax rule conditions are met, such as:

- the expenditure must be from a qualifying revenue category (not be capital expenditure)
- the spending must not be incurred in carrying out activities contracted to the company by another person (however a slightly different form of R&D tax credit may apply)
- the expenditure must not have been met by another person (i.e. if the R&D project is whole or part funded by a grant, or other kind of aid, none of the spending on your project can qualify).

Claiming R&D relief can be a great benefit for your business but requires expert advice. Contact Martin Southern of Morris Crocker Chartered Accountants on 023 9248 4356 or email for more information.

Margot Vere
Morris Crocker Chartered Accountants

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