The Research and Development (R&D) tax credits scheme offers businesses the ability to invest in new technologies and scientific development in exchange for generous reliefs and credits.
Businesses investing in R&D projects can benefit from a significant reduction in their Corporation Tax bill. It is also possible that the scale of the refund can wipe out a Corporation Tax bill or even result in HMRC making a refund! The use of R&D can also help businesses develop unique products and services and attract outside investment.
Individuals, partnerships or Limited Liability Partnerships are not eligible to use the scheme
However, we would recommend that careful analysis is undertaken before a partnership invests in significant R&D expenditure as it may be more beneficial to look at incorporating.
There are two schemes for claiming relief – the Small or Medium-sized Enterprise (SME) Scheme and the R&D Expenditure Credit (RDEC) scheme for large companies. The SME scheme offers more generous reliefs.
However, SMEs can elect to claim relief under the RDEC scheme if they are unable to claim relief under the SME scheme because of a grant or subsidy, or because they are carrying out subcontracted R&D work.
Since R&D schemes were launched in 2000-01, more than 170,000 claims have been made and £16.5 billion in tax relief claimed. In the latest figures published (for 2015-16) the total number of claims for R&D tax credits for that year rose to 26,255, an increase of 19% from the previous year. This increase was mainly driven by a significant rise in the number of claims being made by SMEs. These SMEs claimed an average of almost £60k in R&D tax relief.
The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 73% of claims and 75% of the total amount claimed for 2015-16.
The total level of R&D expenditure used to claim R&D tax relief was £22.9bn in 2015-16, an increase of 4% from 2014-15. This was heavily weighted to claims made by large companies. Companies of all ages can make R&D claims.