Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. For companies the benefit is achieved through a reduction in their tax liability, as an incentive for businesses to invest in accelerating their R&D, hiring new staff, and ultimately growing. Despite the benefits of this tax relief, up to £84 billion of R&D tax relief is believed to have gone unclaimed in the UK according to figures from the Treasury – with up to 80 percent of eligible businesses not having made a claim.
SME R&D relief allows companies to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction.
Claiming Research and Development tax reliefs
Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
You may be able to claim Corporation Tax relief if your project meets our definition of R&D.
Projects that count as R&D
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 – such as pure maths.
The project must relate to your company’s trade – either an existing one or one that you intend to startup based on the results of the R&D.
To get R&D relief you need to explain how a project:
- looked for an advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worked out by a professional in the field
Your project may research or develop a new process, product, or service or improve on an existing one.
Types of R&D relief
There are different types of R&D relief, depending on the size of your company and if the project has been subcontracted to you or not.
Small and medium-sized enterprises (SME) R&D Relief
You can claim SME R&D relief if you’re an SME with:
- less than 500 staff
- a turnover of under 100 million euros or a balance sheet total under 86 million euros
You may need to include linked companies and partnerships when you work out if you’re an SME.
SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss-making, worth up to 14.5% of the surrenderable loss
Research and Development Expenditure Credit
This replaces the relief previously available under the large company scheme.
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
The RDEC is a tax credit, it was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to:
- 12% from 1 January 2018 to 31 March 2020
- 13% from 1 April 2020
Call a member of the team today to find out more on 01942 816 512.