Research & Development (R&D), current issues and repayment delays
What is R&D tax credit?
To encourage innovation, the UK government introduced an R&D tax credit scheme. A company qualifies for the claim when an advancement is made in the overall knowledge or capability in a field of science or technology. Qualifying expenditure include creating new processes, products or services or making appreciable improvements to existing ones.
Who can claim?
R&D claims made by small and medium sized companies are particularly generous as there is currently 230% relief available for qualifying expenditure. As well as general expenditure a claim can also be made for direct staff costs covering employees who undertake R&D work. A claim is made for their salaries, wages, class 1 NIC and pension fund contributions.
Support staff cost such as administrative or clerical members generally do not qualify. External agency workers who are directly and actively engaged in the R&D project can usually claim 65% of the payment made to the staff provider.
Also, Loss-making companies can surrender their losses in certain case to obtain tax credit relief as 14.5% repayable credit. This means that the company receives £33,350 refund for every £100,000 spent on R&D.
How the claim works?
R&D relief claim is made by entering the total qualifying expenditure on company’s corporation tax return form (CT600). If a company has carried on R&D activity and no relief claim has been made, it can be backdated within 1st anniversary of the filing date (2 years within the end of the accounting period).
R&D tax credit repayment delays
This generous tax break has reportedly resulted in some abuse of the system. HMRC has recently paused some repayments while they investigate an increase in irregular claims. Unfortunately, even for legitimate claims this has increased the processing times, in a vast majority of the claims from 28 days to 40 days.
HMRC are making the following changes to future claims
HMRC intends to make the following changes:
- all claims to the R&D reliefs – either for a deduction or a tax credit – will in future have to be made digitally (except from those companies exempt from the requirement to deliver a Company Tax Return online)
- these digital claims will in future require more detail – for example, on what expenditure the claim covers, the nature of the advance sought, the field of science or technology, the uncertainties overcome
- each claim will need to be endorsed by a named senior officer of the company
- companies will need to inform HMRC, in advance, that they plan to make a claim
- claims will need to include details of any agent who has advised the company on compiling the claim
These changes will coming into effect from April 2023.
Here at signature tax we have a team of experienced R&D experts who can help you handle your claim and guide you through the process from start to finish.
Email us: email@example.com or call us on 0333 009 0801