Research & development tax relief

Research and development tax relief

More companies now qualify for higher R&D relief with the limits to qualify as a small or medium-sized enterprise (SME) doubling and the rates of R&D relief increasing for all companies in 2008. At the same time, companies are carrying out a wider range of activities to develop their product range, with environmental concerns being high on the list of drivers. HM Revenue & Customs (HMRC) reviews of claims are becoming more sophisticated and more claims are likely to be challenged. All these factors coupled with the fact that R&D tax relief is a still a huge cash saving opportunity contribute to the reasons why R&D should still be high on the agenda.

Increased rates and how this affects you

There is a widening of who is eligible for maximum relief and an increase in what can be claimed across small and medium organisations as well as an increase in rates for large companies.

Many companies previously claiming at the 125% large company rate could benefit from enhanced R&D deductions at 175% under the new SME regime, resulting in a tax saving of 21% on qualifying expenditure compared to 7.5% under the previous large company regime – almost triple the rate.  Loss making SMEs may elect to surrender losses and get cash back at a rate of 24.5%, which may be particularly relevant in the current economic climate.

The large company rates for enhanced R&D deductions have increased from 125% to 130% from 1 April 2008.

Increased HMRC scrutiny

The Government has made several changes to the claims process creating an environment of uncertainty. In addition, HMRC has increased the level of scrutiny that it applies to certain types of claims and there is not yet a consistent approach to challenging a company's claim.

Our team of specialists work closely with clients to submit R&D claims and put in place effective and long-term reporting systems to help companies comply with all relevant HMRC requirements. Such an approach eliminates HMRC scrutiny over future claims and also translates into time and cost savings.

Potential issues you may face when making future claims

• Interpreting qualification criteria can be complex with many companies incorrectly ruling themselves out by failing to recognise some qualifying activities and costs
• The six year time limit for R&D tax relief claims has been cut to two years. Companies, therefore, will need to act faster to file their claims
• Changing legislation means that companies may file their claims incorrectly
• Robust documentation to support a claim is essential
• Determining whether a company is an SME is not always easy, and some claimants may confuse the rules relating to SMEs and large companies. Specialist advice should be sought in determining whether a company meets the SME criteria.

How we can support you

We combine extensive knowledge of the legislative environment with practical experience in working with companies to support clients through every stage of the application process.

• We can navigate you through the process with as much, or as little, assistance as you desire
• We can help you interpret qualification criteria - many companies incorrectly rule themselves out by failing to recognise some qualifying activities and costs
• PwC is able to expedite claims by putting in place effective long term reporting systems compliant with HMRC requirements and agreeing methodologies with HMRC on your behalf

Since setting up specialist units, HMRC has become more sophisticated in its assessment of R&D tax relief claims. PwC’s expertise can not only get claims agreed quickly but we also agree future methodologies with HMRC to expedite future claims. We help companies put in place effective and long-term reporting systems to comply with all relevant HMRC requirements. Such an approach reduces HMRC scrutiny over future claims and translates into long term time and cost savings.