Research & Development Tax Credits are a government incentive aimed at helping UK businesses by encouraging and rewarding innovation.
R&D tax credits are available to companies engaged in research and development activity, regardless of their size. However, in order to make a successful claim, it’s imperative that businesses are fully aware of the criteria they need to fulfil.
As specialists in this field, R&D Tax Solutions will guide you through the claims process form start to finish and maximise your chances of success.
How does R&D Relief Work?
R&D relief provides financial assistance via the claiming company’s corporation tax calculation. The relief is structured so that both profitable and loss making companies may both benefit by making a claim.
For profitable companies the benefit is achieved through a reduction in their tax liability, for historic years this results in a repayment of overpaid tax. This reduction on average is equal to 25% of the qualifying R&D expenditure incurred.
For loss making companies the R&D claim will increase the loss arising. This can then be set against prior and future profits of the company. Alternatively, the loss attributable to the R&D activity can be surrendered to HMRC in turn for a cash payment.
Several categories of costs qualify for R&D tax relief. Once costs have been allocated to a specific project the total of these costs is then multiplied by the relevant R&D regime relief, determined by the business size and funding of the project.
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To be eligible for R&D tax credits, it’s essential to understand and meet the necessary criteria as outlined by the Government. There are currently two schemes to reward UK businesses: the SME regime and the Research and Development Expenditure Credit (RDEC) regime for larger organisations. Depending on which category your business falls under, the benefits available will differ.
To make a claim under the more generous SME Regime
The finance tests must be met:
- < 500 employees, and
- < €100m turnover, or
- < €86m balance sheet.
In addition, if the company meets the finance tests then the project must also be considered. If any of the below apply then that project (and only that project) may not be able to claim under the SME regime. Our expert team can help you understand this area.
- State aid
If the company and project qualifies under the SME regime, the financial benefit on average will be 25% of the cost of the R&D project. This can on occasions be increased to as much as 33%.
The RDEC Regime
Companies who don’t meet the financial limits above can only claim under the RDEC regime. This is less beneficial, however does result in cash back of 9.7% on your project costs. This saving is equally open to both profitable and loss making companies.
If you are a SME company but one of your projects is funded, it is likely that this project and its costs will be required to claim under the RDEC regime. This does not effect your other projects which may continue to claim under the more advantageous SME regime.
If you find yourself claiming under both regimes the tax calculation and how these knit together can become complex. Don’t fret, our team is here to help.