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R&D is a great way to get tax relief. But there are some things to bear in mind.
- R&D credits are a Corporation Tax relief designed to encourage innovation and enterprise within the UK economy. The scheme offers businesses the ability to invest in new technologies and scientific development in exchange for generous tax reliefs and credits.
- There are two schemes for claiming relief, depending on the size of the company or organisation; the Small or Medium-sized Enterprise (SME) Scheme and the Research and Development Expenditure Credit (RDEC) scheme for large companies.
- The tax credits available to SMEs have increased substantially over recent years. Since 1 April 2015 SMEs can claim tax credits of 230% on qualifying expenditure. This effectively means that for every £100 a company spends on qualifying R&D, they can deduct £230 from their profits when calculating profits chargeable to Corporation Tax.
- Companies can benefit from SME status if they have less than 500 staff and a turnover of under €100m or a balance sheet total under €86m. Care needs to be taken if a company is deemed to be a linked enterprise as this can affect their entitlement to SME status.
- Large companies can also qualify for tax relief on R&D expenditure. The way the relief is calculated is very different to that for SMEs. Large companies claim R&D Expenditure Credit (RDEC). The RDEC rate increased from 11% to 12% for expenditure incurred after 1 January 2018. The RDEC allows companies to claim an enhanced Corporation Tax deduction or payable credit on qualifying R&D costs.
- For loss-making companies using either the SME or RDEC schemes, the tax credit is fully payable (subject to certain restrictions).
- R&D has a specific statutory definition for the purposes of tax relief which is not the same as the commercial, engineering or accounting definitions.
- There are no specific record keeping requirements for R&D Relief claims but the general Corporation Tax requirement to keep sufficient records still applies. However, it may be pertinent to keep records that allow for easy access to R&D related expenditure.
- If a company receives a grant for an R&D project which is notifiable under State Aid then they will be ineligible for relief under the SME scheme. However, eligible expenditure will qualify under the RDEC scheme. Companies should contact their grant providers for further information.
- The project must advance overall knowledge or capability in a field of science or technology. We can help ascertain whether or not a specific project you are considering is likely to qualify for relief. HMRC also offers an advance assurance scheme that we have experience in using.
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