Research & Development
Research and development (R&D) tax credits are a government incentive designed to reward UK companies for investing in innovation. They are a valuable source of cash for businesses to invest in accelerating their R&D, hiring new staff and ultimately growing.
Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for R&D tax relief. If you’re spending money on your innovation, you can make an R&D tax credit claim to receive either a cash payment and/or Corporation Tax reduction.
The Research & Development tax credits programme has two distinct schemes, one for small or medium sized enterprises (SMEs) and another, known as Research & Development Expenditure Credit (RDEC) for large companies.
Grants or subsidies can affect what a company is entitled to claim and where these do not allow SMEs to claim under the SME scheme, they will be able to claim for eligible expenditure under the RDEC scheme. SMEs may also claim under the RDEC sc heme if they are carrying out subcontract R&D for a large company.
Only companies that are subject to UK corporation tax can benefit from the schemes, however, this does not exclude those that are loss making or mean that the R&D has to have been performed in the UK. There are no restrictions on which industry sectors can apply.
SMEs – A company is classed as an SME for R&D tax purposes if it has fewer than 500 employees (company or group) and a turnover below €100 million or gross assets of less than €86 million.
Large Companies – A company (or group) is regarded as a Large Company if it exceeds the SME thresholds.
Any company that resolves difficulties or challenges and applies technology or science in doing this, should consider the relief, whether they undertake the work on their own behalf or on behalf of others. This includes businesses developing new or improved products, processes, services or systems and those that are technology, manufacturing or processing-led.
Profitable SMEs obtain an enhanced deduction of 130%, that equates to tax relief of up to 46% of the qualifying expenditure – effectively reducing the net cost to £54 per £100 of spending. The regime is particularly beneficial for early stage and loss-making companies, as a payable tax credit can be recovered from HMRC equivalent to 33.35% of the qualifying expenditure – effectively reducing the net cost to £66.65 per £100 of spending.
Payments to clinical
parts for prototypes
for R&D work
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R&D tax credits can be a valuable form of financial support for all businesses. In addition, it is helping businesses across all sectors in the UK develop some of the world’s leading products, processes and services.
Cash Injection – R&D Tax Credits provide an essential source of non-repayable funding for many small, medium and large enterprises.
Boost Innovation – R&D Tax Credits help encourage businesses to invest in R&D and innovation.
Retrospective R&D Tax Credit Claims – Whether you’re profitable or loss-making, it’s also possible to claim for R&D projects undertaken during your previous two accounting periods.
Economic Growth – Every £1 spent on public R&D delivers approximately £7 of net economic benefit to the UK and unlocks £1.40 of private R&D investment.
Global Leaders – R&D Tax Credits help put the UK at the forefront of R&D and innovation across the globe.