What is research and development tax relief?
R&D Tax Relief is a government initiative designed to reward UK companies for investing in innovation. Set up in 2000, there are now two schemes:
- Small to Medium-sized Entity (SME) Scheme
- Research & Development Expenditure Credit
If your company carries out research and development, you may be eligible for tax incentives through the R&D tax credit scheme. Limited companies spending money on new product development or new processes, or making significant improvements to existing ones, may be entitled to claim for R&D Tax Credits.
Research & Development Expenditure Credit
The Research & Development Expenditure credit which is available to companies who don’t meet the criteria of an SME and to SME’s who have been subcontracted to by Large or International companies, has recently been improved by the Conservative government. And the coalition government before that legislated for its creation and for the last improvement in the SME Scheme.
R&D tax credit rates
We’ve helped thousands of businesses make successful R&D Tax Relief Claims. We have the technical expertise to determine eligibility and we can quickly and smoothly help you to submit a claim. The timing of your claim is important.
The R&D Tax Credit scheme offers up to 33% (33p for every £1 spent) on qualifying expenditure. The exact rate your business qualifies for will depend on your Corporation Tax position and whether your business is profit or loss-making.
The SME R&D Tax Relief allows companies to
- Deduct an extra 130% of their qualifying costs from their yearly profit, in addition to the normal 100%, enabling a 230% deduction
- Claim a tax credit if the company is loss-making (worth up to 14.5% of the surrenderable loss)
To claim relief your project will need to meet the R&D relief scheme requirements. Cooden Tax can help you to determine eligibility for specific projects and assist in making a claim. We can in fact determine whether there is potential in a project in an initial 15-minute phone call.
We offer a significantly reduced fee to ‘green’ businesses.
Saved from R&D Tax Relief
SME subcontracting – can I make a tax credit claim?
As an SME if you are subcontracting out R&D work to a subcontractor you can still include these costs on your R&D Tax Credit Relief claim. This is regardless of whether your subcontractor is an SME, large company, individual, or qualifying body.
If you are an SME carrying out R&D work for a large company you may also be able to claim under the RDEC scheme.
R & D Tax Credits FAQs
Am I eligible for Research & Development Tax Credit?
Your company may be eligible to claim if an R&D Project “seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty.”
Your company must be incorporated and liable to pay Corporation Tax to be eligible for R&D Tax Relief or R&D Tax Credit.
This list is not exhaustive, but sectors likely to be able to claim include Clinical Research, Communications & Media, Construction, Cosmetics, Defence, Engineering, Information Technology, Manufacturing, Motorsport, Pharmaceuticals, Product Design and Software Development.
Other industries which may be able to claim include, Agriculture, App Development, Architects, Banking, Brewing, Electronics, Environmental Management, Food Processing, Testing, Training and Transport.
An initial consultation with one of our R&D Tax Relief experts costs nothing. Give us a call to find out if your business is eligible for any R&D Tax Relief.
Does my business qualify for the SME or Large Company Scheme?
The Small to Medium Sized Entity Scheme is for companies employing up to 500 people with either an annual turnover not exceeding €100 (£86) million or a balance sheet not exceeding €86 (£74) million.
The company must be carrying on a trade, or be a new trade arising from the successful outcome of a Research & Development Project. The company must be undertaking research and development for their own benefit and not as a subcontractor.
The large company scheme has been replaced by the Research and Development Expenditure Credit (RDEC). The large company scheme was available to companies not meeting the criteria for the SME scheme up until 31 March 2016.
What is the Research & Development Expenditure Credit (RDEC)?
The Research & Development Expenditure Credit was introduced in 2013 to further encourage large companies to invest in R&D. RDEC has extended the reach of the Large Company scheme by enabling those who have made a qualifying loss to still submit a claim.
The Credit under RDEC is accounted as income in a company’s profit and loss. The (recently improved) 12% rate (effective 1 January 2017) translates into a net relief of 9.72% after tax.
If your company makes a loss, RDEC allows you to claim the 9.72% as a cash sum, so long as you have no other outstanding taxes due to HMRC and you have paid PAYE and NI contributions for staff involved in R&D in excess of the amount of the repayment.
To find out if your business is eligible for RDEC contact our tax relief specialists today.
- 8th May 2019