DO YOUR RESEARCH ON R&D TAX RELIEF CLAIMS

By Anthony Andreasen, director at RMT Accountants & Business Advisors

There’s no reason why UK – and indeed North East – companies shouldn’t be right up there with the best in the world when it comes to innovative research and technology.

Thanks to the Government’s research and development (R&D) tax relief scheme for SMEs and an array of grant funding opportunities, financial assistance is never far away.

However, while grants and R&D tax relief might both sound like the answer to your funding prayers, they aren’t always compatible. They can be combined to provide immediate cash flow AND greater returns in the long term, but SMEs need to take great care that they organise this properly or problems could arise.

As things stand, if a given company receives even a penny of notified state aid for any part of an R&D project, it’s automatically excluded from claiming R&D tax relief under the SME scheme.

For the SME scheme, R&D tax relief is regarded as state aid itself, and accessing it would push recipients into the much less generous Large Company (LC) scheme. Instead of being able to deduct up to 225% of qualifying expenditure when calculating their profit for tax purposes, they would have to make do with the 130% ceiling level offered by the LC scheme.

Even a subsidy from a source other than state aid will have an effect – any parts of the project you’ve funded yourself can go through the SME scheme, but all subsidised expenditure must go through the LC scheme.

Whether you’d be better off with a grant, R&D tax relief or a combination of both depends on two things – your eligible expenditure and the size of the grant on offer.

There’s a fairly easy case to make for accepting a large grant of, say, £250,000 towards R&D expenditure, but when figures are smaller, the judgement on which route to take can be more finely balanced and the calculations required need to be more detailed.

There are, of course, some exceptions to the rule – grant funding won’t, for example, affect your ability to claim under the R&D tax relief SME scheme if the grant is used to fund an area of the project, such as marketing or commercialisation, which doesn’t fall under HMRC’s definition of R&D.

There are also other issues to consider when weighing up the relative merits of grants and R&D tax relief – money received upfront versus claimed retrospectively, very strict versus relatively open eligibility criteria, and an expectation of success versus an acceptance of failure.

As ever when it comes to taxation, there’s rarely an easy answer to be found, but with the right amount of careful consideration and appropriate advice, both grants and R&D tax relief can make a massive difference to North East companies’ financial arrangements and commercial success.

For more information please contact Anthony Andreasen (0191 2569500) or email anthony.andreasen@r-m-t.co.uk