Innovation inspires research
and development tax relief
Research and development tax relief, introduced in 2000, is a component of the government?s strategy to improve productivity across the UK.
From 1 August 2008 the size of a company that qualifies as a small or medium-sized enterprise (SME) for R&D tax relief purposes doubled and the rate of relief available to SMEs has risen from 150% to 175%.
?The changes in rates of relief mean many companies previously claiming at the 125% large company rate could benefit from enhanced R&D deductions at 175% under the new SME regime. The result is a tax saving of 21% on qualifying expenditure compared to 7.5% under the previous large company regime ? almost triple the rate,? says PricewaterhouseCoopers R&D specialist, Lesley Hill.
For loss making SMEs, the company may elect to surrender losses and get cash back at a rate of 24.5%. According to Ms Hill, industries typically claiming R&D relief include software, high tech electronics, life sciences, aerospace and pharmaceutical industries. Less obvious industries eligible for relief include retail, manufacturing, financial services, automotive, oil and gas, engineering, and food and beverages.
?Many companies fail to identify any or all of their qualifying activities. Application of the definition extends well beyond the traditional areas of research. You do not have be doing research in a lab and wearing a white coat to qualify,? comments Ms Hill.
R&D relief is available on improving existing technologies, developing new applications or turning something that is already established as scientifically feasible into a cost-effective, reliable and reproducible process or product.
PricewaterhouseCoopers LLP has seen the pace of change in science and technology having an effect on most companies. In order to remain competitive, companies usually have to invest in research and development to keep a step ahead. The increasing focus on energy efficiency is impacting on many sectors. Developing a cheaper, faster or more energy efficient product or process may qualify for UK R&D tax relief.
The fast moving consumer goods industry also spends significant amounts on R&D; from genetically modified (GM) foods to packaging. Eligible R&D activity includes improvements or alterations to packaging for different cooking or storage methods, such as extended shelf life, lower fat or reduced cholesterol versions of existing products.
Ms Hill comments: ?Interestingly, many R&D claims for engineering process improvements and appreciable improvements to existing products go unclaimed because companies think they have to be developing something from scratch in order to qualify. The next generation version of a computer game, or combining different technologies into one system for the first time, may be eligible R&D activities for UK tax purposes.?
The process of making a claim can be fast and efficient. The UK tax authorities have set up R&D specialist units to administer the regime and since their introduction in 2006. ?We have found that claims can be prepared and agreed quickly, minimising any distraction from the companies? core activities.?
While UK R&D tax relief provides a valuable source of funding for many companies, it is important that an evaluation of other incentives is done when investing in the UK. There are a number of UK and European grants that companies may benefit from, and their effect on R&D tax relief is important to consider. Multinational companies will also want to ensure that they structure their R&D operations to make the most of R&D tax relief available around the globe. However, what is for certain is that many companies are currently benefiting from claiming UK R&D tax relief and will continue to do so in the future.
Lesley Hill is the Network Leader for
research and development at accounting firm
+44 (0) 1895 522 119