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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 Research & Development projects can benefit from a significant reduction in their Corporation Tax bill. The scale of the refund can even wipe out a Corporation Tax bill. It could 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.
Who Can Use The Scheme?
Individuals, partnerships or Limited Liability Partnerships can't 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
- 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.
Which Sectors Are Growing The Fastest?
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. Together they make up 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. Large companies made up the bulk of claims. Companies of all ages can make R&D claims.