Q: "Can I really get cash from the taxman if my business does R&D work?" A: It is indeed possible to receive a cash payment from HM Revenue & Customs, where a company undertakes research & development activities (R&D).
But first to dispel a few myths. There is a specific definition of R&D that your expenditure must meet in order to qualify for this generous tax relief. In simple terms: the spending must be in relation to a specific project where the R&D activities directly contribute to achieving a scientific advance or breakthrough.
It is important to note that this advance must be in the overall knowledge or capability in a field of science or technology, i.e. pushing the boundaries of existing technology, not just updating your servers.
One of the key points that HMRC will examine before agreeing to a claim is that the R&D must be either innovative or ground-breaking in some way, or otherwise make an appreciable improvement to existing knowledge or processes, and you must be prepared to demonstrate this to them in great detail should they challenge the claim.
Also, there must be qualifying expenditure of at least £10,000 on R&D in the accounting period in order for a claim to be made. There is no upper limit on the amount of the claim.
Where a company’s expenditure on R&D qualifies, it can receive tax relief against its profits at a rate of 150 per cent of the amount spent on R&D.
Alternatively, the company can choose to receive a cash payment worth 24 pence in the pound of qualifying R&D spend. This is particularly attractive where a company has not made a profit in the year and where the extra cash will be useful.
Martin Dunne is a partner at Sayers Butterworth LLP. He previously worked in the entrepreneurial services division of Ernst & Young, and has over 15 years of experience working with fast-growing, entrepreneurial businesses. He provides practical and commercial advice to clients ranging from start-up stage to AIM-listers in a variety of sectors including retail, property, manufacturing, technology and media.
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