R&D tax relief for firms in all sectors in Scotland
The UK government understands that promoting British innovation is key to making the nation more competitive globally, increasing productivity and fuelling economic growth. One aspect of this is the promotion of innovation tax reliefs that are available to both small and medium-sized enterprises (SMEs) and large companies.
Research and Development (R&D) tax relief is a government initiative managed by HM Revenue and Customs (HMRC). It allows companies that are investing in innovation to claim additional tax relief on their qualifying expenditure, encouraging UK companies to innovate and use the savings from their relief claims to fund their growth by, for example, hiring new staff, creating innovation areas in premises and undertaking further R&D activity.
Relief for SMEs is currently set at 230 per cent, allowing every pound of qualifying expenditure to deliver an additional £1.30 of Corporation Tax relief. Larger companies can also reduce their Corporation Tax liability or receive a repayment from HMRC through the R&D expenditure credit (RDEC) scheme.
Innovation in any sector can qualify for R&D tax relief so companies spending money on creating new products, services, materials or processes – or simply modifying existing ones – will normally be eligible to make a claim for R&D tax relief.
There are many drivers for undertaking research and development. These may include reducing costs, making products more environmentally friendly, and gaining or retaining a competitive advantage. However, for relief to be available, the project must seek to achieve an advance in science or technology through the resolution of scientific or technological uncertainties.
Our work in this area reflects the fact that most companies are seeking to make such advances, and overcome such uncertainties, resulting in successful claims being made from a wide variety of sectors including construction, technology, oil and gas, food and drink, software and fashion.
Many companies we meet make the mistake of thinking that their day-to-day operations do not constitute innovation as such, but are simply ‘normal’. They are regularly found to be facing challenges that require uncertainties to be overcome to advance their technology, yet will not have considered making an R&D claim.
All companies should consider seeking advice to determine the relief they can tap into, because this relief is not only for activities undertaken in scientific research laboratories. Typically, a company that has not previously claimed relief can access a claim for its last two periods.
Additionally, a common misconception for loss-making companies is R&D will only increase losses being carried forward for relief against future profits. This is not the case as SMEs can normally surrender losses for a cash payment from HMRC.
These payments to loss-making SMEs can often assist with funding the future R&D activities of these innovative companies. However, other funding, in the form of grants and subsidies, will affect the level at which SMEs gain relief for their R&D activity. Relief is still available at a less generous level but a claim is usually still recommended – and additional advice for such companies can be beneficial.
The UK also provides support for companies who go on to patent their inventions through a further relief known as Patent Box tax relief. This reduces the effective tax rate on profits from the exploitation of qualifying patents. There are a number of conditions to be met when claiming R&D and Patent Box tax relief which an informed advisor can simplify to maximise your claim, reduce your time spent on making claims and ensure your company’s claims are accurate.
The upcoming Budget on 11 March will be of interest to innovative companies wishing to keep informed of any potential changes, or enhancements, to existing tax reliefs.
Derek Gemmell is head of innovations tax at Anderson Anderson & Brown