Research & Development Tax Credits – keep thinking!

Dec 3, 2019 | Taxation, Tax Tuesday


Last week the Office for National Statistics (ONS) published 2018 data on UK R&D expenditure.

Research and Development Tax Credits continue to provide one of the most generous tax reliefs available to UK companies.

The ONS publication must help to make sure that those in the corporate sector keep thinking and consider carefully what they are doing day-to-day, and whether they might be eligible……………

The ONS report identifies a range of potentially significant statistics. In the opinion of Tax Tuesday, the following series of extracts should be viewed as encouraging to company owners:

  1. total expenditure on R&D nationwide is estimated at £25 billion in 2018, up 5.8% on 2017;
  2. (this total expenditure represents an estimated 1.8% of the UK’s GDP for that year);
  3. this estimate of 1.8% of GDP compares to the government’s target for R&D expenditure of 2.4% of GDP by 2027 (per their formal Industrial Strategy);
  4. the current 0.6% gap noted in 3 above, then, provides both a lot of scope and encouragement for further qualifying expenditure;
  5. the North West’s share of the 2018 R&D expenditure is £2 billion (surprisingly 7% down on 2017, while nearly all other regions have seen increases);
  6. the North West’s pro-rata share of the scope for additional R&D expenditure noted above is therefore over £650 million per annum, based on 2018 GDP figures.

The question arises, then: do we believe that the government (and therefore HMRC) might be pre-disposed to a higher incidence of claims to R&D tax relief from companies in the UK, and in the North West in particular?

The answer must surely be “yes”, as long as those claims are capable of being sustained, of course.

Recapping on the relief

So, let’s remind owners (of SME companies) about this relief:

All qualifying R&D expenditure is uprated, for the purposes of Corporation Tax deduction, by 130%.

This means that £1 of spend on “R&D” is treated as £2.30 for tax. The normal 19% relief applicable to the expenditure therefore turns into 43.7% relief. This can be highly valuable, of course.

Qualifying expenditure arises where there are “projects” (for which you might read “activities”) which seek to achieve some form of advance in technology (for which you might read “improve our know-how”) and involve overcoming specific technological uncertainties (for which you might read “trying to solve problems which aren’t immediate or easy”).

When activities can be regarded as “R&D”, the eligible expenditure undertaken includes:

  • the staff costs involved;
  • any sub-contract costs involved; and
  • any incidentals like consumables, utilities etc., expended along the way.

We know from long experience that many owners assume that they aren’t involved in R&D. This is despite the fact that they may regularly be solving problems and advancing the company’s know-how all the time, during the course of their business.

Our advice remains to consider carefully and optimistically whether what you and your staff are doing, on a daily basis, might involve “R&D” for taxation purposes. And please be clear that we can go back two years to capture relevant expenditure which not yet have been claimed.

If you would like to discuss your company’s circumstances and activities in relation to possible R&D tax relief claims please speak to your relationship principal here, or email