Question Hub

Our FAQs page aims to cover the most pressing questions you may have about claiming government incentives. Our in-house teams have provided some succinct answers but if you would like more detail, just get in touch!

R&D Tax Credits

What is the R&D tax credit scheme?

Introduced in 2000, the UK R&D tax credits scheme allows companies to reduce their corporate tax bill or receive a tax refund based on a proportion of their R&D expenditure. The main objective of the scheme is to increase both the quality and quantity of UK Research and Development, in order to attract foreign direct investment and encourage domestic R&D activity.

A business can use the R&D Tax Credit Scheme to reduce their tax liability if they are carrying out qualifying research and development (R&D) activity, this is known as R&D tax relief. It is possible for both profitable and loss-making companies to claim a R&D Tax Credits.

What type of businesses can benefit from R&D Tax Credits?

The scheme can be used by any organisation that is liable for corporation tax in the UK and meets
the necessary R&D criteria; it can even be used on unsuccessful projects. The work that qualifies for R&D tax relief must be part of a specific project which aims to make an advance in its

The project may research or develop a new process, product or service or improve on an existing one. To receive the benefit, the business will need to explain how this project: identified an advance in science and technology, had to overcome uncertainty and tried to overcome this uncertainty and couldn’t

How do I know if I’m carrying out R&D?

HMRC’s definition of R&D is fairly broad. Businesses of any size in almost every sector can claim R&D Tax Credits. If your company is taking a risks or working on technically challenging projects which attempts to ‘resolve scientific or technological uncertainties’ then it is likely that your business is carrying out qualifying activity. 

  • Do you have do full design or make improvements to the design process?
  • Have you carried out new product development?
  • Are you reducing the number of steps in a process through adapting your current methodology?
  • Is the solution to your problem not readily available online?
  • Do you undertake testing or make prototypes?
  • Do you develop backend software systems?

What criteria are HMRC looking for?

There are 3 main areas which the HMRC look at when qualifying R&D tax credit claims.

  • Technical Uncertainty: This means that a project wasn’t completely plain sailing and you had to overcome challenges on the way.
  • Technical Advancement: This criteria can be attained by taking a project from concept to completion or by developing your own knowledge by overcoming a particular difficulty.
  • Systematic approach: When encountering a problem you research the best way to overcome it you don’t just stumble across the solution.

How will I receive my R&D tax credit?

The form your R&D tax credit benefit takes varies depending on whether you are using the SME R&D tax credit scheme or RDEC.
Under the SME scheme, the R&D tax credit you receive reduces your taxable profits. For a Profit making company you will receive a reduction in your corporation tax bill. You will be able to claim up to 25p of every £1 spent on R&D activities.

If you are a loss-making company, you can choose to receive a cash payment in exchange for the surrender of your R&D enhanced losses or a reduction in your corporation tax from HMRC. This can be a very useful option to help boost cash flow and can be worth up to 33p for every £1 spent on R&D.
In comparison, the benefit you receive from RDEC is visible “above the line” as income in your accounts. When claiming RDEC, the credit itself is taxable income and reduces your corporation tax liability, in certain circumstances this can be paid as a cash credit.

How long does it take to receive my money from an R&D tax credit claim?

HMRC aim to make payments within 28 days for SMEs claiming research and development (R&D) tax credits. Large company claims through the RDEC scheme may take longer to pay due to the greater complexity of their business.

How far back can I claim R&D tax credits?

R&D tax credits are claimed retrospectively and can be claimed for the previous two accounting periods. If you make a claim for a period in which you have already paid your corporation tax, your company tax return is amended and HMRC will issue you with a repayment.

What costs qualify for R&D tax credits?

You can claim research and development (R&D) tax credits on your day to day operational costs (revenue expenditure) Examples of revenue expenditure which can be included in your R&D claim are:

  • Staffing costs, Subcontracted R&D,
  • Externally Provided Workers (EPWs),
  • Consumables and Software.

Capital expenditure including money spent on fixed assets such as land and buildings cannot be included as qualifying R&D expenditure within your claim.

Is it possible to increase the value of previous claims?

If you have submitted a claim within the previous two years you are able to look over your claim and review the report with a specialist. Claims can often be uplifted and any areas that were missed out on previously can be added. This will be in the form of a separate report which will be submitted alongside your previous R&D claims that have been made.

Patent Box

How do I know if my business is eligible for the Patent Box Scheme?

To qualify for the Patent Box Scheme, your business must be subject to UK corporation tax and you must hold or actively manage qualifying patents or IP. You should be able to identify and calculate your relevant profits from qualifying IP income in order to qualify for the scheme.

What financial benefit can I receive from the scheme?

If your business qualifies for the scheme , you can apply a reduced 10% rate of corporation tax on all profits relating to qualifying patents, instead of the normal corporate tax rate. Patent Box Scheme can be leveraged in addition to the R&D tax credit scheme, and claimed simultaneously.

How complicated is a Patent Box application process?

Calculating the final figures for a Patent Box application is a tricky process – it involves identifying intercut revenue streams, handling each different IP right, fractions of the money R&D spend, and a HMRC formula. This all needs to be demonstrated in a concise written document showing your methodology. Don’t worry if that sounds daunting, this is why Leyton are here to help.

Land Remediation

What is Land Remediation Tax Relief?

Land Remediation Relief was introduced in 2001 to encourage the rejuvenation of land that had been ruined by industrial processes . The scheme rewards developers who actively work on contaminated sites by allowing them to claim back between 10 – 30% of the costs incurred in cleaning up land they purchased in a contaminated or derelict state.

What is the relief available for?

In simple the tax relief is available for undertaking either of these two separate activities:

  • Remediating land acquired in a derelict state
  • Remediating land acquired in a contaminated state.

What is “contaminated land”?

Land is in a contaminated state only if there is something in, on or under the land which causes “relevant harm”, or there is a serious possibility that “relevant harm” might be caused. The contamination must be the result of an industrial activity unless the contaminant is arsenic, radon, or Japanese knotweed – these can be present naturally.

What is “derelict land”?

Derelict land is land which cannot be put into a productive state without the removal of buildings or other structures. The term “productive state” has a wide meaning. It includes land that is in economic use, for example as retail premises or a car park, and land that has a social use, as housing or a recreational area

Capital Allowances

What is capital allowances and who can claim?

Capital allowances is a tax relief that allows businesses who pay tax in the UK to deduct from their taxable profit, the value of their qualifying expenditure that is capital in nature. Businesses who pay tax in the UK: Companies, Partnerships, Individuals, Overseas investors can claim capital allowances

What is plant and machinery allowances (PMA)?

This is a type of capital allowances that allow businesses to claim the cost of their qualifying equipment and items like computers and furniture used in carrying on their business activities.

What if the business and their accountant is already claiming capital allowances?

Accountants are usually more familiar with basic plant and machinery allowances. They will typically make basic capital allowances claims such as on IT kit and other regular business equipment. However, with our capital allowances specialist skills and experience comprising of construction, engineering, surveying, accounting and tax advisory, we are able to maximise the business’ cash saving opportunities in more complex capital expenditure, such as building or large-scale industrial plant projects.

What if the business is loss making, can they still benefit from capital allowances?

The loss in a period may be surrendered to HMRC for a potential tax credit / refund. Subject to certain restrictions, the losses could potentially be carried back to a previous profitable period to initiate the tax refund. Capital allowances claim can equally be deferred partly or in full to a future period.

What if the business has lost the invoices or other cost information in respect of the capital expenditure they incurred?

We have construction cost engineering and surveying skills in our team. With our quantification / pricing knowledge and experience, we can value the relevant assets based on construction industry pricing standard, in order to identify the items and expenditure qualifying for tax relief.

What if the capital expenditure was a long time ago?

There is generally no time limit and so we can go as far back as necessary into previous accounting periods to identify additional tax relief. If you still own the asset in respect of which you are claiming, the capital allowances regime is designed in such a way that you can introduce the claim in your tax return for any future period, or by amending a recent tax return that is still available for amendment.

What is research and development allowances (RDA)?

A type of capital allowances that allow businesses to claim the cost of qualifying expenditure on capital assets like buildings and equipment used in carrying on their research and development activities. The entire cost of the qualifying expenditure Is available to be claimed in the year the expenditure was incurred.

What is structures and buildings allowances (SBA)?

This is a type of capital allowances that allow businesses to claim the cost of qualifying structural and other related building works. For SBA to be available, the agreement for the building works would need to have been entered into on or after 29th October 2018. The rate of relief is at 3% (or 2% if before [1/6] April 2020) per annum on a straight-line basis.

What is super-deduction on plant and machinery introduced by the UK government in March 2021?

Super-deduction is a temporary form of capital allowances that allow business to deduct a 130% of the cost of qualifying plant and machinery (main pool) like factory equipment and office furniture, in the year the spend was incurred. It is due to end on 31 March 2023. Certain types of plant and machinery (special rate pool) will be available at 50% in the year the spend was incurred.

What is first year allowances (FYA)?

This a form or capital allowances that allows businesses to claim the entire cost of the qualifying expenditure in the first year the expenditure was incurred. An example is qualifying electric vehicle charging point.

What is annual investment allowances (AIA)?

This allows businesses to claim the cost of qualifying plant and machinery in the first year of incurring the spend, up to a certain limit. The standard limit was £200k as of 31 December 2018 but has been temporarily increased to £1m until 31 March 2023.

What is the enhanced capital allowances tax relief in Freeport tax sites?

This is temporary measure expected to end on 30 September 2026, which allows businesses to claim 100% of the cost of qualifying plant and machinery, in the year they incur the spend. Additionally, capital expenditure qualifying for structures and buildings allowances (SBA) can be claimed at the rate of 10% on a straight-line basis (instead of the standard SBA rate of 3%).