Ignorance of rules can be expensive!
R&D tax relief is provided by the government for any company with an R&D project which seeks to advance or appreciably improve overall knowledge or capability in a field of science or technology by resolving scientific or technological uncertainties.
HMRC manual CIRD81000 summarises the conditions which must be satisfied for a successful claim. It defines ‘an advance in science or technology’ as:
An advance in science or technology means an advance in overall knowledge or capability in a field of science or technology (not a company’s own state of knowledge or capability alone). This includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible.
Work which uses science or technology, but which does not advance scientific or technological capability as a whole is not an advance in science or technology.
So, to identify whether the company may be eligible to claim this valuable relief, you may use this updated step-by-step flowchart.
Once the eligibility criteria are set, the company may be able to claim R&D relief. There are two schemes – R&D tax credits for Small/Medium Enterprise (SME) relief and R&D expenditure credits (RDEC).
For expenditure on or after 1 April 2023 the changes are as follows:
This ACCA article contains useful examples which explains the impact of the above changes as compared to the previous rates.
Merger proposal of RDEC and R&D SME scheme
On 18 July 2023, the government published draft legislation setting out the design for a merged research and development (R&D) tax relief scheme, applicable from 1 April 2024. However, no decision has been taken to introduce a merged scheme.
Key features of proposed merged scheme
R&D and going concern
Last but not least, as agents are aware, if a company does not meet the condition of being a going concern, then it may not be eligible to claim the R&D relief. At a recent case at First-tier tribunal (FTT), MW High Tech Projects UK Ltd [2024] TC 09011, the taxpayer lost its appeal and the tribunal instead agreed with HMRC that a claim for the research and development expenditure credit (RDEC) was not valid as the company’s accounts show that it was not a going concern at the time of the claim.
This ACCA article summarises the full facts of the court case.