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Research and Development Tax

What is Research and Development Tax?

In 2000 the government introduced a scheme to encourage scientific and technological innovation within the United Kingdom.

Research and Development Tax (“R&D”) is a Corporation Tax relief that might reduce a company’s tax bill if the company is liable to pay Corporation Tax.

R & D Tax Relief

For tax purposes, R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology.

R&D relief allows companies that carry out qualifying R&D related to their trade to claim an extra Corporation Tax deduction for certain qualifying expenditure.

The level of relief available depends upon which scheme the company uses.

The R & D Tax Schemes

1.The Small and Medium-Sized Enterprise (“SME”) scheme – From 1 April 2015, the relief a company can get has increased to 230% on their qualifying R&D costs. Loss-making companies can in certain circumstances surrender their losses in return for a payable tax credit.

2. Research and Development Expenditure Credit (“RDEC”) Scheme – Companies with no Corporation Tax liability will benefit from RDEC either through a cash payment or a reduction of tax or other duties due.

The payable credit is limited to the company’s PAYE/NIC liabilities of the staff engaged in qualifying activities in the accounting period. SMEs will be able to claim RDEC if they do sub – contracted or subsidised research. Companies in groups can surrender the RDEC against another group company’s Corporation Tax liability.

How to make a claim and calculate R & D

A claim for R&D relief can be made annually by entering the total qualifying expenditure on the full Company Tax Return Form CT600 for the accounting period i.e., in the company’s financial year.

 

If the company is profitable, the R&D costs can be used to reduce the company’s tax bill to a much greater degree than the usual deductions.

 

If the company is loss – making (i.e., it does not owe any tax for that year), the claim benefit can either take the form of additional losses that can be carried forward to future years, or the losses can be surrendered for an immediate cash benefit.

 

SMEs can claim up to 33p for every £1 they spend on qualifying R&D activities and, crucially, R&D is not restricted to any specific sector – any industry can claim.

Examples of costs that can be included in an R&D Tax Credit Claim

  • Salaries of full-time or part – time staff members
  • Subcontractor costs (if the company is an SME)
  • Contract Workers
  • Consumables (e.g., water, gas, electricity, cost of prototypes not for sale)
  • Software Licence costs

Backdated Claims

If a company has been undertaking qualifying R&D and has not yet claimed R&D relief, it may make a backdated claim within the anniversary of its filing date — generally 2 years after the end of the accounting period.

However, once the time limit of 2 years after the end of the accounting period has expired the claims to make R&D claims will automatically expire and be permanently lost. This may be as a direct result of an accountant having been negligent.

Limitation period to bring a claim against an accountant for professional negligence

If an accountant has been negligent the Limitation Act 1980 provides that a Claimant generally has 6 years from the failure leading to the breach of duty and resulting financial loss to make a claim, but this can be extended in certain circumstances for 3 years from the date of knowledge of the failure.

Hence, if an accountant has missed deadlines, or failed to notify a client of the possible availability of R&D tax relief or undervalued or not recognised R&D tax reliefs, this will be a breach of their contractual retainer, and also negligence.

The average value of a R & D claims in the SME and RDEC schemes is £67,000 for every year claimed.

Our mission

We can arrange for a team of specialist tax advisers, solicitors and barristers to assist claims to be pursued for recovery of losses caused by accountants missing deadlines, or failing to notify a client of the possible availability of R&D tax relief, or undervalued or not recognised R&D tax reliefs, as this will be a breach of their contractual retainer, and also negligence.

The team of specialist tax advisers will provide you with an initial free of charge consultation of your R&D tax position in order to verify the amount that you would have been able to be reclaim from HMRC if your accountants had not been negligent.

Once we have qualified your position, we can arrange for you to instruct a legal team to act on your behalf, and they will provide their services on a no win no fee basis to recover your cash repayment from your accountant’s insurer.

Request a consultation

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