Research & development tax credits have provided UK businesses with more than £21bn of tax incentives since their launch in 2000. With the pharmaceutical industry spending a combined £4.1bn on R&D in 2016 alone, it’s pretty easy to see why this tax relief can bring such hefty rewards for innovative SMEs.
The biggest problem that companies tend to face is deciding what qualifies as R&D expenditure. Although there’s a common misconception that it’s all lab coats and software design, there are plenty of other areas which are eligible.
What activities qualify for R&D tax relief?
There’s no getting away from the fact that the pharmaceutical industry is uniquely positioned to carry out research and development projects. It also faces its own set of challenges due to the type of research that’s being carried out, such as drug research projects that take many years to complete.
Let’s take a closer look at what the government defines as projects eligible for R&D tax credits. According to HMRC:
1. You must be able to show how your research looked for an advancement in science and technology
2. You must demonstrate that you had to deal with uncertainty
3. You must be able to show how you attempted to overcome this uncertainty
4. You must show that it couldn’t be easily solved by an existing professional in the field
To make things simpler when making your R&D Tax Credit calculations, it’s a good idea to keep an ongoing log of all the elements of each project undertaken. Note as you go which you feel are eligible and revisit them at the end to make sure that each facet being claimed meets the above criteria.
These notes can also be invaluable should you need to prove R&D expenditure during an audit or investigation.
If you’re only just starting to look into R&D tax relief then you’ll be pleased to hear that you can amend previous Corporation Tax claims up to two years after filing.
For more information on R&D tax credits and how they can benefit your pharmaceutical business, contact Cornel Accountants today.