How research and development tax relief can benefit your franchise

The R&D tax relief is designed to support companies that work on innovative projects in science and technology

You may not be aware of it, but HMRC is currently actively promoting research and development (R&D) tax relief for qualifying organisations. The R&D tax relief is designed to support companies that work on innovative projects in science and technology and can be claimed by companies that seek to research or develop in an advance in their field.

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This is an interesting and important tax break which could be relevant for any franchisor working on new products or services, or for any company considering longer-term R&D projects. Tax relief can even be claimed on unsuccessful projects, so it is worth being aware of the significant financial benefits this could bring.

How do you qualify?

The key point is that for qualifying companies, the R&D expenditure attracts an additional 130 per cent of the qualifying costs being claimed for tax purposes. So, for a company qualifying for £100k worth of R&D, there are additional qualifying costs of £130k, taking the total which can be reclaimed to £230k.

Meeting the qualifying criteria is key to being awarded the rebate. There is further information on the gov.uk website but briefly, HMRC states: “The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology. It cannot be an advance within a social science like economics or a theoretical field like pure maths. The project must relate to your company’s trade - either an existing one or one that you intend to start up based on the results of the R&D. Your project may research or develop a new process, product or service or improve on an existing one.”

This means, any advance in a field of science or technology which extends the overall knowledge in the given field and not just the company’s own state of knowledge or capability, could qualify for a significant tax rebate. It can’t just be an existing technology that has been used for the first time in your sector. The technological challenge will not have been able to be readily resolved by a ‘competent professional’ in the industry and it will be necessary to show how the scientific or technological uncertainties were faced and how these were overcome. According to HMRC: “This can be a simple description of the successes and failures you had during the project.”

Getting the right advice

Dealing with the detail of HMRC rules and regulations often requires guidance and so working with accountants and business advisors who can cut through the jargon to guide you through the process is a worthwhile investment. If as a franchisor, you are considering an R&D project, it would be worth discussing the scope of the work in advance, with qualified individuals to ensure all your hard work is recorded correctly and therefore recognised by HRMC to qualify for this valuable tax break.

Last year, d&t won the bfa Innovation & Development Award at the British Franchise Association conference. Our team of experts are always happy to discuss ideas and projects and provide guidance to franchisors and other companies about the world of tax and business planning.

The author

Carl Reader is chairman at d&t, award-winning chartered accountants and expert business advisors.

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