If a company is carrying out R&D, it may be eligible to claim R&D Tax Credits through one of two schemes: the SME (Small-Medium Enterprise) scheme, and/or the large company Research and Development Enhanced Credit (RDEC) scheme. But what is the difference? In this guide, the R&D Tax specialists at Luvo Financial explain.
Research and Development (R&D) tax relief is a valuable government tax incentive designed to encourage companies to invest more time and money into R&D projects. There are two types of relief that companies could be eligible for: SME R&D relief and RDEC.
In working out which type of relief a company is eligible for, Luvo looks at three key areas:
• staff numbers
• turnover, and
• gross assets.
To claim SME R&D relief, your company must have a staff headcount of less than 500, and a turnover of less than €100m or under €86m in gross assets.
The SME scheme works by allowing profitable businesses that fall into these brackets to deduct an extra 130 percent of their qualifying R&D costs from their taxable profit, in addition to the normal 100 percent deduction. This makes a total 230 percent tax deduction. If a business has made a loss, it can claim a tax credit worth up to 14.5 percent of the surrenderable loss.
Research and Development Expenditure Credit (RDEC)
Large companies can also claim R&D tax relief for their work on R&D projects. This is through what is called a Research and Development Expenditure Credit, also known as RDEC. The scheme was introduced in April 2016, to replace the Large Company Scheme.
For the purposes of R&D tax incentives, if a company has a staff headcount of more than 500, and a turnover of over €100m or more than €86m in gross assets, it is classed as a large company. RDEC allows large companies to claim back 12 percent of their qualifying R&D expenditure (from 1 January 2018 – 11 percent up to 31 December 2017). This can add up to a considerable amount; most recent HMRC statistics state that the average RDEC claim is worth £272,881.
It’s worth noting that, in some circumstances, RDEC can also be claimed by SMEs. If an SME cannot claim SME R&D relief because they have been subcontracted by another company or because the project it is working on is already receiving notifiable state aid (grants), it may still be able to claim RDEC.
Get in touch
For more information on SME R&D relief or RDECs, and for advice on making a claim, call us on 01902244210 or submit an enquiry here.
Luvo Financial works with businesses and independent accountancy practices across the Midlands and elsewhere in the UK. Luvo was founded in 2015 by Partners Ian Batkin and Vicki White, who are both qualified accountants.