We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
A starting point for those looking for a basic practical tool outlining eligibility points when making an R&D claim
As highlighted in March, the government is reviewing Research and Development (R&D) tax reliefs to ensure the regime continues to be well targeted and effective in incentivising innovation in a rapidly changing environment.
The following checklist provides a starting point for practitioners looking for a basic practical tool to ensure the main eligibility points of the R&D tax regime are considered when making an R&D claim.
General points – applies to all R&D reliefs
| R&D being carried out by a company? | If not no relief. Guidance note at CIRD81900 and CIRD80560
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| R&D relevant to a trade carried on, or to be carried on, by the company; or is it medical research with a special relationship to the welfare of workers in that trade? | |
| Does the R&D project seek to achieve an advance in the overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty? | |
| Does the R&D company qualify as an SME? | If not, consider the R&D expenditure credit (RDEC). |
| Expenditure covered by a subsidy? | If yes, no relief for that subsidised expenditure but can consider an RDEC claim, for the subsidised expenditure. Also note the question below for SME relief about state aid grants as well. |
| Capital expenditure? | If yes, that expenditure doesn’t qualify for relief – consider whether R&D allowances are available. |
| Recording details | Consider record-keeping, particularly project planning and progress reports, to substantiate the future claim. |
| Time limit | Must be in the CTSA return or amended return. |
Qualifying costs
| Employee costs | Must be costs of employing staff actively carrying out R&D or on qualifying indirect activities (apportion if not entirely R&D). |
| Externally provided workers | If unconnected provider: can you make an election for connected party treatment (and is it worthwhile)? Election must be joint, in writing, and within two years of the end of the accounting period. |
| Materials/consumables | Must be consumed in carrying out the R&D but includes catalysts. Where goods/services are produced in the course of the R&D activity, and these are sold in the ordinary course of the company’s business, no R&D relief is available for the expenditure on the materials/consumables which form a part of those goods/services |
| Clinical trials volunteers | Are the amounts relevant payments? |
| Utilities | Power/water/fuel used directly in carrying out R&D, but not telecoms and data (apportion costs, eg electricity where supplied to mixed-use building). |
| Software | Must be used directly in R&D (apportion costs, eg office software used across the company). |
| Sub-contracted out activities | SME relief Unconnected provider: can you make an election for connected party treatment (and is it worthwhile)? (Election must be joint, in writing, and within two years of the end of the accounting period) Large company relief |
SME relief
| Has any State Aid grant been received for the project? | If yes, cannot claim SME relief for expenditure on that project in any accounting period, even if grant used for non-qualifying expenditure. Can consider an RDEC claim. |
| Is the company not a going concern? | Are the most recent accounts qualified, or would they be qualified if the company was not expecting R&D relief or credits, or has the company since gone into administration? If yes, cannot claim either SME relief or RDEC. |
| Is the total value of R&D relief (in aggregate over whole project) more than €7.5m? | If yes, cannot claim SME relief. Can consider an RDEC claim. |
| Has the work been subcontracted to the SME by a large company or an entity outside the scope of UK tax on trade/professional/vocational income? | If yes, cannot claim SME relief. Can consider an RDEC claim. |
| Claiming pre-trading expenditure as an immediate loss for relief (or tax credit)? | Election required and must be in writing within two years of the end of the accounting period. |
Large company tax relief
| Has the work been subcontracted to the large company by an SME? | If yes, no relief – the sub-contracting SME claims relief. |