Research and development tax relief
If you own a limited company that has been trading for more than 12 months then there is a significant chance you will be eligible to claim Research and Development tax relief if you’re able to answer ‘yes’ to any of the following questions.
- Have you made any bespoke products or customised products?
- Have you developed any new products or been involved in introducing them?
- Have you carried out design work in-house or sub-contracted design?
- Are you regularly problem solving for customers’ needs?
- Have you made any environmental improvements to your process?
- Have you consistently made improvements to your manufacturing processes?
- Have you developed or improved any software for your business?
Irrespective of whether your company is currently making a profit or operating at a loss, a claim is still be possible. A profitable company can receive a reduction in its corporation tax liability of up to 25p for every pound spent on qualifying R&D activities and a loss-making company can obtain a repayable tax credit from HMRC of up to 32.625p for every pound of expenditure, even if it has never paid any corporation tax. And, because you can make a claim for your company’s previous financial year, for which corporation tax may already have been paid, there’s every chance that you’ll receive a significant repayment of tax, in addition to reducing the current year’s liability.
If you’re still unsure whether your company is eligible for a claim, please arrange a consultation with one of our experienced advisers. You have nothing to lose and, potentially, an enormous amount to gain. Incidentally, you don’t pay us anything until you have received the full benefit of the claim from HMRC.
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“Thankfully, the assistance we got from Niche has enabled us to secure tax relief on our property purchase of over £200,000. Without Niche, we’d have lost it.”
“When you receive a repayment of income tax of £48k that you had no idea was coming, you can’t help but celebrate!”
Client Case Studies
- Taxable profits of £945k in 2012/13 and £1.178m in 2013/14
- Qualifying R&D spends identified of £242k in 2012/13 and £278k in 2013/14
- Corporation tax repayment for 2012/13 of £76k
- 2013/14 corporation tax liability reduced by £83k
- Missed opportunity of £80k tax repayment for 2011/12 through being ‘out of time’
The company must remain anonymous, but this client’s accounts showed taxable profits of £945,000 for its accounting period ended 31 March 2013. It had paid corporation tax on these profits of £221,250, the payment having been made just prior to the payment deadline date of 1 January 2014. For the following year, ended 31 March 2014, taxable profits were £1,178,000 and a corporation tax liability of £268,525 had been calculated as due for payment on 1 January 2015. We spoke with the company in May 2014 and it was clear that qualifying R&D activities had taken place during both financial years. We identified qualifying expenditure of £242,300 for the year ended 31 March 2013 and £277,900 for the year to 31 March 2014. The results are quite startling. In respect of the year ended 31 March 2013, we were able to reduce the corporation tax payable from £221,250 to £145,531. This resulted in a repayment of £75,719 (plus interest) of the tax they had paid on 1 January 2014. For the year ended 31 March 2014 the corporation tax liability dropped from £268,525 to £186,023, reducing the amount that the company has to set aside for payment on 1 January 2015 by a massive £82,502. It turned out that the company had, in fact, been carrying out R&D activities during the year ended 31 March 2012, too. Unfortunately, by the time we met with the company in May 2014 to discuss the opportunity with them, it was already too late to do anything about it as a claim has to be made within two years of the end of the accounting period. Although it was hard for them to swallow, they realised at that point that they had overpaid corporation tax for 2011/12 of around £80,000.
Loss making company
New company with a loss of £592k in year one
Qualifying R&D spend identified of £357k in year one
Never paid any tax because it’s a new company
- Received £88k from HMRC in respect of year one
This company was incorporated in May 2013 and immediately began carrying out qualifying R&D activities. Although the company was technically trading from incorporation until the end of its first accounting period (31 March 2014), it was primarily engaged in developing new products, which is why it incurred a significant loss during these first few months. In fact, the tax computation showed a tax loss of £592,000. Because this was the company’s first accounting period, the only thing they were going to be able to do with that tax loss was carry it forward to the following year and offset it against any future profits from the same trade. But there was no guarantee that 2014/15 would be profitable either, as more development work was planned. We went in and identified that they had incurred expenditure of £357,000 on qualifying R&D activities. Under R&D tax relief rules, the qualifying expenditure is subject to a 125% uplift (that’s £446,250) which meant that we were able to increase the tax loss from £592,000 to £1,038,250. We then applied to HMRC for a repayable tax credit, calculated as 11% of the actual expenditure (£357,000) and the uplifted expenditure (£446,250). So the repayable tax credit was 11% of £803,250. The payment by HMRC to the client was therefore £88,357.50. Remember, this is a brand new company that has never made a profit. And here it is, receiving a cheque from HMRC for almost £90,000 which, as you can imagine, was a great help to a company in its early stages of life. Incidentally, the 11% rate referred to in this case study, was increased by the Government to 14.5% as from April 2014 so, had the information above related to 2014/15, the HMRC repayment would have been £116,471.25 rather than £88,357.50. Needless to say, this company plans to make a further R&D claim for the year ending 31 March 2015.