R&D Tax Credits and Tax ReliefRead more about the SME (Small-Medium Enterprise) scheme and the Research and Development Expenditure Credit (RDEC).
To be eligible to claim under the R&D Tax SME scheme, a business needs to:
- be undertaking eligible qualifying R&D,
- have less than 500 staff, and,
- have either a turnover under 100 million euros, or a balance sheet total under 86 million euros.
SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs (essentially P&L costs consumed in undertaking the R&D) from their yearly taxable profit, as well as the normal 100% deduction, to make an attractive total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss. There will be a cap introduced in respect of payable cash credits for all accounting periods commencing after 01/04/21, but this will only potentially affect larger SME repayment claims.
To qualify for R&D relief you need to have stood the cost / financial risk from undertaking the research and/or development of a new product, process, system or service, or improve on an existing one. In addition, it’s required to explain how a project(s):
- looked for an advance in science and/or technology,
- had to overcome uncertainty and how you went about this,
- could not be easily worked out by a professional in the field.
Research and Development Expenditure Credit (RDEC) is one of the tax schemes available in the UK that is designed to encourage UK private businesses to invest in innovation in return for a number of rewards. It can be claimed by companies that are subject to Corporation Tax and which carry out and spend money on qualifying research and development (R&D).
The first step is to identify whether your company is innovating, based on the qualifying criteria: If a business is standing the risk and cost from seeking to achieve advances in developing new or improved products, processes or services, by overcoming scientific or technological issues / uncertainties.
If this applies, your business will be seen as carrying out qualifying activity and be able to claim R&D Tax Credits.
Claiming R&D Tax Credits under either scheme reduces Corporation Tax liability – if your business has no Corporation Tax liability, you can usually claim the credit as a cash payment.
Where forced to claim under RDEC, companies can still realise a worthwhile realisable benefit / return on their investment in R&D, which will also provide encouragement and funding for continued expenditure on this differentiating activity.
Always remember that RDEC isn’t just for large companies; it is also a useful tax incentive that can be claimed by SME’s that are precluded from claiming under the SME R&D Tax Credits scheme.
We explained more about how the relief works, what qualifies and how to make a claim, in a recent article published in The Gazette. Read it here.
Get in touch
For further guidances on R&D Tax Credit schemes, please pop your details in the form below and one of our R&D tax specialists at Luvo Financial will be in touch to see if we can help you.