R&D Tax Relief & its Benefits
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. R&D is a Corporation Tax (CT) the tax relief that may reduce your company’s tax bill if your company is liable for CT or, in some circumstances, you may receive a payable tax credit. You may be able to claim Corporation Tax relief if your project meets our definition of R&D.
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
Benefits of R & D credits:
It doesn’t matter what sector or industry your business is in. As long as a company is UK-based and registered to pay Corporation Tax then its innovative activities are likely to qualify. You can still claim even if the R&D project ultimately failed in its objectives, as long as technical and/or scientific investment was made.
A broad range of costs are eligible such as Direct staffing costs like employers NICs and staff wages, R&D consumables used up directly in the R&D process, Software, Contributions to independent research, Externally provided workers, Subcontracted R&D, Prototypes, Clinical trial volunteers.
There’s no minimum claim requirement for R&D Tax Credits. R&D Tax Credit applications can be made even for the smallest amounts, which is great news for lower spending companies.
Even companies that are loss-making can apply. Loss-making companies are able to receive R&D Tax Credits as long as their application is approved by HMRC. How much a company will receive however depends on the regime it has used. Loss-making SMEs can receive between 14.5% and 33% of qualifying R&D expenditure. Loss-making larger companies or subsidized projects can attract relief totaling 9.7% of eligible R&D expenditure.
Loss-making SME businesses can also choose to not surrender the R&D loss but instead carry it forwards/backward against profits.