If your company is undertaking a project that is looking at innovating, improving, or developing a product, process, or service, then you may qualify for R&D tax relief. There are two different types of R&D relief which are generally dependant on the size of your company.
A company is usually defined as an SME if staff headcount is less than 500 and either turnover is less than €100m, or the balance sheet total is less than €86m. There are also a number of further considerations that must be taken into account when determining if a company is defined as an SME such as group structures and whether grants are being received. If an SME does not qualify the company can elect to claim using the less generous RDEC scheme.
Since 1 April 2015 SMEs can claim R&D 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.
The RDEC scheme (formally known as ‘Above-the-Line’) was introduced in April 2013 for large companies. Historically, companies could choose between the RDEC scheme or the Large Company scheme. The Large Company scheme was withdrawn from April 2016.
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.
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 under State Aid, or because they are carrying out subcontracted R&D. For loss-making companies using either the SME or RDEC schemes, the tax credit is fully payable (subject to certain restrictions).
We are experienced in helping clients make claims for R&D tax relief. If you would like to discuss your available options, please get in touch.