Use Intellectual Property to Claim R&D Tax Relief

Research and development tax relief is a useful tool to help startups claim cash or cut their tax bill.

03 November 2020

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Startups that carry out research and development (R&D) may be able claim money off their tax bill or even get cash back from the UK Government – and if you don’t think your business conducts R&D, then it may pay to think again.

Tax credits to reward innovation

R&D tax relief was introduced in 2000. The scheme has been expanded and adjusted over the years but, at its heart, it still rewards companies that use their intellectual property (IP) to innovate and increase UK productivity.

There are two schemes: small and medium-sized enterprises (SME) R&D relief for businesses that have fewer than 500 members of staff and which turn over less than €100 million (£90m) or have less than €86m (£78m) on their balance sheet; and the R&D expenditure credit (RDEC), which replaced the large company scheme.

IP projects that count as R&D include creating a product, process or service, or improving an existing one. The work must relate to the company’s trade – either its existing business, or one that it intends to start based on the results of the project.

A wide range of industries and technologies

“Growing tomatoes using lasers – that goes down as one of the more unusual tax credit claims,” remembers Chris Anderson, UK sales director at consultancy firm ABGI, which helps companies to apply for R&D tax relief. As well as listing digital technology, oil and gas, and engineering firms amongst its clients, the firm also works with startups and smaller players in the industries’ supply chains, such as businesses providing parts to aerospace giant Rolls-Royce.

“Food is an interesting one – we saw a large increase in R&D around the time the sugar tax was being introduced because companies wanted to make their products taste the same, but with less sugar and fewer additives. We’re now seeing a similar situation with the ‘fat tax’, with a lot of companies investing in R&D to make their products healthier.”

Article originally published on Labs UK Barclays

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