R&D Tax Relief

Research and Development (R&D) Relief is a Corporation Tax relief that may reduce your company's tax bill more than your actual expenditure on allowable R&D costs.

Background

Tax relief for relevant R&D expenditure has applied since April 2000 for SMEs and the scheme expanded to large companies in 2002. R&D is only available to incorporated companies and any company that is attempting to move from a position of scientific or technological uncertainty towards a position of scientific or technological advance in a planned and systematic manner can claim for R&D relief.

Do you qualify?

To qualify a company must:

  • Be an incorporated business (PLC, Limited, LLP)
  • Be liable to UK Corporation Tax
  • Relate R&D to company's trade or business
  • Have expenditures that are deductible when computing the profit of the company
  • Expenditure must not be capital expenditure
  • De minimis claim cost £10,000 annually restriction now abolished

 

Small or Medium Enterprise or Large Company Scheme?

Relief is available for expenditure of a revenue nature on research and development (R&D). There are two schemes: The SME Scheme and the Large Company Scheme.

SME Threshold

Must meet the headcount and at least one of the turnover or balance sheet total tests:

  • Up to 500 staff, turnover up to £88m and a balance sheet total (gross assets) up to £76m
  • More than 500 staff is not an SME. If it has less than 500 staff but a turnover above £88m and a gross assets of more than £76m it is not an SME

The nature and rate of relief therefore depends on whether or not the company is an SME.

SME Scheme Large Company Scheme

175% rate of enhanced deduction (for financial periods pre April 2011)

200% rate of enhanced deduction (for financial periods post April 2011)

225% rate of enhanced deduction (for financial periods post April 2012)

130% rate of enhanced deduction
Payable tax credits for qualifying expenditure on R&D (at 14% pre April 2011 or 12.5% post April 2011) Not applicable.
Company can claim for expenditure on R&D it subcontracts to others (at 65% of eligible costs) Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D in some limited circumstances to certain entitles (qualifying body or institution)
SME cannot claim for contributions to independent research. Company can claim for contributions to independent research.
Claim is reduced if a proposed R&D project is subsidised or a grant is received in respect of it. No reduction for grant or subsidy.

 

Relief and Payable Credit for SMEs

If you are an SME you may receive either tax relief or a payable tax credit.

Tax Relief

The possibilities open to a company depend on whether it makes a profit or a loss. Profitable companies can reduce their taxable profit by applying the relief. If there is an allowable trading loss for the period, this can be increased by applying the relief.

Tax Credit Repayment

If the company makes a loss, it can choose to receive tax relief by way of tax credits - a cash sum paid to it by HMRC, but only if the company has PAYE and NIC liabilities for that period. The amount of tax credit is limited by the total of PAYE and NIC liabilities.

Surrenders losses in exchange for a repayment (the surrendered losses will no longer be available to carry forward or back against other profits).

A tax relief/credit repayment can be granted against a CT600 application in a coming year or as a repair against a submitted CT600 from the last two tax years.

 

Relief for Large Companies

Tax Relief

The possibilities open to a company depend on whether it makes a profit or a loss. Profitable companies can reduce their taxable profit by applying the relief. If there is an allowable trading loss for the period, this can be increased by applying the relief.

There is no repayable tax credit under the Large Company Scheme

SMEs may also make claims under the large company scheme when they are unable to benefit under the SME scheme.  A tax relief can be granted against a CT600 application in a coming year or as a repair against a submitted CT600 from the last two tax years.

 

For any more information and R&D tax relief, don't hesitate to get in touch on 0191 3864786 or email us info@westwaters.com

 

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