By James Fraser, Tax Partner, Armstrong Watson LLP

RESEARCH and Development (R&D) tax relief is one of the most generous corporate tax reliefs offered by the UK Government, but many businesses miss out as they wrongly believe they are not eligible to apply.

The stereotype has long been that R&D eligible companies are those with lab technicians in white coats, but the definition of the kind of activities that qualify for R&D tax relief extends much further than that.

R&D tax relief is available to all companies subject to corporation tax who invest their resources into developing new or improved products, systems, or services, and which fall under the Government’s “qualifying activities”.

Small and medium-size qualifying companies can receive an additional enhanced deduction of 130 per cent against their profits, so with every £10,000 of qualifying expenditure your company would benefit from an additional £2,470 of tax relief.

To qualify, a company must be able to demonstrate that it has: attempted to overcome technically challenging aspects to a project ie, complex technical designs, new software solutions, new formulations, or even new processes, where a competent professional could not easily deduce the solution – can’t just be “off-the-shelf” – and where the final solution aims to appreciably improve the knowledge, science, or technology available within their respective fields ie, how is the final product better than competing products in the market?

Since the start of the pandemic, we’ve generated more than £7.1 million in tax savings for our clients, having dealt with £40m of R&D expenditure, and with changes to R&D schemes on the horizon, businesses should take advantage of the significant savings available.

During the recent Spring Statement, the Chancellor announced that he is looking to make some changes to R&D tax relief aimed at encouraging UK investment. He also confirmed

that cloud computing and data (hosting) costs associated with R&D will qualify as expenditure within the scheme from April 1, 2023, opening the door to additional qualification opportunities for businesses. However, the Government is aware there has been some abuse under the SME scheme and further announcements to combat this are expected at the 2022 Autumn Budget.

For advice and support, please contact James Fraser on 0808 144 5575 or email