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Research & Development Tax Credits

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Research & Development Tax Credits – they are now firmly “in fashion”

Those who avidly follow the latest trends on the catwalk must wait until September for the next instalment of London Fashion Week. In the tax field, however, R&D tax credits are firmly in fashion right now writes Margaret Connolly, Partner and Head of Taxation at Reeves, a KCFA member.

Your own company may well have been targeted by organisations that have clambered aboard this particular bandwagon and have adopted a scatter gun marketing approach which promises significant benefits at modest cost without taking the time needed to understand the fundamentals of the business concerned.

If we pause for a moment, it is instructive to reflect that R&D tax credits have actually been with us since 2000. Indeed Margaret was probably involved in submitting some of the earliest claims for these valuable credits. To borrow another analogy from the world of couture, they are a wardrobe staple rather than simply this season’s must have item.

To qualify for R&D tax credits, a company must incur expenditure on a project that represents “an advance in science or technology.” Whilst this advance must be in the global state of knowledge and not just in that of the company concerned; it can extend well beyond the traditional image of “white coats and test tubes.” To attract the tax credits the spend needs to demonstrate a reasonable amount of innovation and/ or creativity. It is not even necessary for a project to succeed. A large proportion of the engineering, processing and manufacturing sectors are potentially engaged in qualifying activity. Indeed we at Reeves have identified many companies whose activities involve “making or processing” that can qualify.

If then, R&D tax credits represent a hardy perennial of the UK tax scene; it is fair to say that not all of the present excitement is mere froth. An already generous set of arrangements have recently been tweaked to make them yet more appealing.

If your company qualifies as a Small or Medium Sized Entity (SME) – the definition of which is broad enough to encompass some quite large businesses, then with effect from 1 April 2012 the available tax deduction has been increased to 225% of the actual spend!

A special tax deduction may be of limited use to a loss making company, so an SME in this position can surrender its R&D tax credits for a direct cash injection from the government. The rules surrounding this aspect of the scheme have also recently been liberalised, and indeed, from 1 April 2013, such surrenders may be made by companies too large to qualify as an SME.

We at Reeves have been supporting our clients with their R&D tax credit claims since the very beginning; we should be delighted to discuss with you, on a no obligation basis, any potential claim that you believe you might have.

For further information, please contact Margaret Connolly at Reeves on 01227 768231 or by emailing