A starting point for those looking for a basic practical tool outlining eligibility points when making an R&D claim
As highlighted in March, the government is reviewing Research and Development (R&D) tax reliefs to ensure the regime continues to be well targeted and effective in incentivising innovation in a rapidly changing environment.
The following checklist provides a starting point for practitioners looking for a basic practical tool to ensure the main eligibility points of the R&D tax regime are considered when making an R&D claim.
R&D being carried out by a company? |
If not no relief. Guidance note at CIRD81900 and CIRD80560
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R&D relevant to a trade carried on, or to be carried on, by the company; or is it medical research with a special relationship to the welfare of workers in that trade? |
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Does the R&D project seek to achieve an advance in the overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty? |
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Does the R&D company qualify as an SME? |
If not, consider the R&D expenditure credit (RDEC). |
Expenditure covered by a subsidy? |
If yes, no relief for that subsidised expenditure but can consider an RDEC claim, for the subsidised expenditure. Also note the question below for SME relief about state aid grants as well. |
Capital expenditure? |
If yes, that expenditure doesn’t qualify for relief - consider whether R&D allowances are available. |
Recording details |
Consider record-keeping, particularly project planning and progress reports, to substantiate the future claim. |
Time limit |
Must be in the CTSA return or amended return. |
Employee costs |
Must be costs of employing staff actively carrying out R&D or on qualifying indirect activities (apportion if not entirely R&D). |
Externally provided workers |
If unconnected provider: can you make an election for connected party treatment (and is it worthwhile)? Election must be joint, in writing, and within two years of the end of the accounting period. |
Materials/consumables |
Must be consumed in carrying out the R&D but includes catalysts. Where goods/services are produced in the course of the R&D activity, and these are sold in the ordinary course of the company’s business, no R&D relief is available for the expenditure on the materials/consumables which form a part of those goods/services |
Clinical trials volunteers |
Are the amounts relevant payments? |
Utilities |
Power/water/fuel used directly in carrying out R&D, but not telecoms and data (apportion costs, eg electricity where supplied to mixed-use building). |
Software |
Must be used directly in R&D (apportion costs, eg office software used across the company). |
Sub-contracted out activities |
SME relief Large company relief |
Has any State Aid grant been received for the project? |
If yes, cannot claim SME relief for expenditure on that project in any accounting period, even if grant used for non-qualifying expenditure. Can consider an RDEC claim. |
Is the company not a going concern? |
Are the most recent accounts qualified, or would they be qualified if the company was not expecting R&D relief or credits, or has the company since gone into administration? If yes, cannot claim either SME relief or RDEC. |
Is the total value of R&D relief (in aggregate over whole project) more than €7.5m? |
If yes, cannot claim SME relief. Can consider an RDEC claim. |
Has the work been subcontracted to the SME by a large company or an entity outside the scope of UK tax on trade/professional/vocational income? |
If yes, cannot claim SME relief. Can consider an RDEC claim. |
Claiming pre-trading expenditure as an immediate loss for relief (or tax credit)? |
Election required and must be in writing within two years of the end of the accounting period. |
Has the work been subcontracted to the large company by an SME? |
If yes, no relief – the sub-contracting SME claims relief. |