On 1st April 2020 Research and Development Tax Relief and R&D Tax Credits will be 20 years old and we thought we should be celebrating that fact.
It has also grown up quite significantly during that time and it’s now getting ready to graduate and just like a student born on 1st April 2020, it is still struggling to gain acceptance and relevance in the wider world.
It was the brainchild of Gordon Brown as a way to help boost Britain’s flagging investment in Research and Development. Initially aimed at Small and Medium Sized Entities who back then were eligible for the SME Scheme if they employed less than 250 staff and had either a turnover of less than €50m or gross assets of less than €43m.
A lot has changed over these 20 years so we thought we’d show you a timeline of how the Tax Relief has evolved and also why, even after 20 years, the best time to start claiming is now, regardless of what your business may have done in the past.
1st April 2000 – R&D Tax Relief introduced initially for SME businesses with an additional deduction of 50% and a repayable R&D Tax Credit of 16% of the total spend on R&D. So a profit making company would make an effective tax saving of around 10% of the eligible costs, but a loss making company would be able to generate a tax saving of 24% of the eligible costs if they surrendered them for the Tax Credit.
1st April 2002 – The Large Company Scheme was introduced allowing any company not meeting the criteria to claim under the SME Scheme to claim an additional deduction of 25% of their eligible spend. This would generate an effective tax saving at the Small Companies rate of corporation tax of 5% but for a company paying the Main Rate of Corporation Tax that would rise to 7.5%
1st August 2008 – the enhancement rate for the SME Scheme was increased to 75% of the eligible spend and the surrender rate for R&D Tax Credits was reduced to 14%. At the same time the Large Company Scheme was improved to allow an additional deduction of 30% of the eligible spend
1st April 2011 – the enhancement rate for the SME scheme was increased to 100% of the eligible spend and the R&D Tax Credit Surrender rate was reduced to 12.5% meaning that 25% of the eligible spend could be claimed as a Tax Credit.
1st April 2012 – the enhancement rate was increased again to 125% of the eligible spend, but the surrender rate was again reduced to 11%.
1st April 2013 – the Research and Development Expenditure Credit (RDEC) was launched, it was designed to replace the Large Company Scheme and would ultimately offer loss making companies, unable to claim under the SME Scheme to obtain a cash rebate for the Expenditure Credit that could not be used to offset the corporation tax liability. The rate of RDEC was a taxable credit of 10% of the eligible spend, which would provide an effective post tax rate of 8% for companies with a profit below £300k and 7.7% for companies with profits over £1,500,000.
1st April 2014 – the surrender rate for R&D Tax Credits was increased to 14.5% under the SME scheme
1st April 2015 – the enhancement rate under the SME scheme was increased to 130% and the surrender rate remained at 14.5% meaning that 33.35% of eligible costs could be claimed as a repayable tax credit. The RDEC rate was also increased to 11% from its initial rate of 10%. The small company’s rate of corporation tax was abolished as the main rate of corporation tax was reduced to 20%.
31st March 2016 – the last date for submitting a claim under the Large Company scheme from 1 April 2016 RDEC became the only method for a large company to use.
1st January 2018 – the RDEC rate was increased from 11% to 12% meaning that eligible expenses would be generate a tax saving equivalent to 9.72% of the expenditure.
31st March 2018 – the last date to submit and amended CT Return for the year ended 31 March 2016 under the Large Company Scheme
December 2019 – in their Party Manifesto the Conservative party pledged to increase the RDEC rate up to 13% if they won the election, we will have to wait until March for the “emergency” budget to see if they remain true to their word. They also suggested they would look at extending the list of eligible costs to include data and cloud servers which have previously been excluded from claims as they don’t fit into an eligible cost bucket as they are neither consumed materials nor are they generally subcontracted out by the claimant company.
Whilst some of these changes look quite random, because of the generosity of the SME scheme, particularly for those companies making a loss, the scheme has had to remain within the rules for EU State Aid throughout its life. The big jump in reimbursement rates in April 2014 meant that the scheme reimbursed at similar rates to the French R&D Tax Relief scheme, which prior to that date had been seen as the most rewarding across Europe.
Claims for R&D Tax Relief have continued to increase over recent years, and there remains scope for them to continue to increase further. Just because you haven’t claimed in the past doesn’t prevent you from claiming into the future.
The scope of eligible projects is almost unlimited, the only requirements for a claim are:
- The claimant is a limited company subject to corporation tax
- The claimant is a going concern
- The claimant has undertaken a project which has been seeking to advance science or technology through the resolution of scientific or technological uncertainty.
We’ve worked with a number of companies over the last seven years across a wide variety of industries, some have obviously been involved in Research and Development and these include companies in Clinical Research, Motorsport Engineering, Software Development but some have been working in Industries where you probably wouldn’t expect there to be R&D such as Debt Collection and Music Rooms.
If you’ve been working on a project that has had you banging your head on a brick wall trying to finish anytime over the last three years or perhaps a project that has completely failed for some reason, it might be worth having a chat with us. The Debt Collection business I referenced above spent somewhere in the region of £400k on a project that failed deliver a workable solution and then spent a further £300k on a project that ultimately worked, they were able to claim back close to £200k of the spend and have now identified further projects to claim for in the following years. It’s amazing what you find when you scratch under the surface of a business.
To celebrate the fact that R&D is going to be 20, we’re going to offer the first 20 businesses that contact us and quote “R&D is 20” with a 20% discount from our standard fees for an R&D Tax Relief claim.
Why not give us a call to find out if there is a 20 year itch to be scratched in your business! You can find out in 15 minutes by booking a call with our director Simon Bulteel at www.calendly.com/simon-bulteel or contact us on firstname.lastname@example.org