Time is running out to claim R&D tax relief

With the 31 March 2008 deadline fast approaching, time is running out for the hundreds of companies that have still not claimed tax relief on the research and development (R&D) work they have carried out.

Businesses that have invested in R&D over the last six years should act now to claim the tax relief on the money spent before the 31 March 2008 deadline. If they leave it until after 31 March, they will only be allowed to claim for money spent in the past two years. This could mean missing out on a significant amount of money.

Diarmuid MacDougall, tax partner at PricewaterhouseCoopers LLP, said:

“There is approximately a billion pounds of cash unclaimed so it is important that every business checks whether they qualify for R&D tax relief on activities carried out. Some may have been doing this for years but not realised the activities qualified, for example a company machining components in the engineering sector or manufacturing food, beverage or household goods may not know that much of their work is classed as R&D and so qualifies for tax relief.

“Those companies that have claimed the relief should also review their activities to ensure that they have claimed the correct amount before the opportunity to do so ends.”

PricewaterhouseCoopers LLP sheds light on five common R&D issues and misconceptions:

1. Companies focusing on research rather than development
   The rules surrounding what constitutes R&D are thought to restrict qualifying activities to research and many companies make the mistake of just focusing on the ‘research’ because they don’t realise what activities qualify as ‘development’. Money can be saved by exploring beyond just the research and into development aspects.
2. R&D costs are often hidden
   The majority of qualifying R&D costs are hidden - a particular issue for manufacturing, engineering and construction companies. Businesses should consult a specialist to find these hidden costs to claim back some of them.
3. The claims process is seen as too complex – especially for historic claims
   Stricter legislation does not mean the R&D claims process has to be difficult. There are many different approaches that can be taken to asses how much money can be claimed back.
4. Staff costs are largely overlooked in establishing qualifying R&D
   A company paying a staff provider for externally provided workers that relate to research and development work may qualify for R&D relief. Many companies in this situation do not claim for this but are eligible to do so.
5. Businesses often think that consumables do not qualify
   Companies often think consumables do not qualify for R&D relief or do not know how to go about claiming these back. The changes to the rules in April 2004 mean that general software and some utilities used in relation to R&D now qualify for relief. This can vary from a software package to the power and water used for a particular project. Consumables are the easiest numbers to claim back and should not be overlooked.

Contact details
Email: Harman Dhillon
Tel: +44 (0)121 265 5033