Research and development tax relief (R&D relief):
What is R&D relief?
R&D relief takes place for a business when a project undertaken seeks to achieve an advance in overall knowledge or capability in a field of science or technology.
To qualify, the company must be carrying out research but this is not just restricted to ‘white coat’ scientific research but also covers creating new processes, products or services, making appreciable improvements to existing ones. Some examples of qualifying activities include software development, bio-energy, cleantech, agri-food and life health sciences. A lot more activities are actually R&D related but many small business are not aware of this.
What is the eligibility for a company to claim R&D Tax credit?
- Be a UK registered company on Companies House. Sole traders do not qualify.
- Be a going concern – trading and transacting business
- Not in administration or liquidation
- Be undertaking qualifying activities and spent money on the same
How does it help the business?
R&D relief allows companies that carry out qualifying R&D related to their trade to claim an extra corporation tax deduction for certain qualifying expenditure.The level of relief available depends upon which scheme the company uses. In cases when the company is loss making, certain qualifying portion of the loss can be surrendered to get the relief.
How many R&D Schemes are there?
There are two main schemes 1. The SME scheme 2. Research & Development Expenditure Credit scheme referred as RDEC scheme.
- SME Scheme
Under the SME scheme companies can get 230% relief on their qualifying R&D costs which can reduce their corporation tax bill. Loss making companies can surrender their losses in return for a payable tax credit into the company’s bank account.
- RDEC Scheme
SMEs Companies that do subcontracted R&D work can claim under this scheme. Companies belonging to a group can surrender their RDEC to another company in the same group to reduce their tax liability.
How is a company termed SME for the relief?
- Staff headcount less than 500 and
- either turnover less than 100 million Euros or the Balance Sheet total less than 86 million Euros
How does a company qualify for R&D tax credit?
- Be a UK Limited company subject to corporation tax
- Carry out research and development activities
- Have spent money on these development projects
Is there a special sector that qualifies for the R&D relief?
Contrary to general perception, all kinds of companies from cheese-making to engineering and software development to construction can qualify for the relief. Any business sector will qualify if there is innovation, creation of new products or creation of new processes.
What costs qualify for the R&D relief?
- Direct R&D staff costs – companies can claim for salaries, wages, class 1 NIC and pension contributions for staff directly engaged in the project
- Software, materials and consumable items directly used for the project including heat and light
- Subcontracted R&D can be claimed at 65% of the costs
How is the R&D relief claimed?
R&D relief can be only claimed by completing and submitting a corporation tax return which will have the computation for the R&D relief under the SME scheme and/or RDEC scheme that the company has undertaken. Company making a claim for the first time is also allowed to claim for the previous two completed accounting periods.
Which R&D scheme is right for my business?
- If you are a small company ie an SME as mentioned above, you can claim under the SME scheme and most start ups will qualify under this category
- If you are a large business (500 staff or more) then you will be claiming under the RDEC scheme
- If your business receives grants which are termed state aid then you can still be eligible to claim under the RDEC scheme
Zyla Accountants have 100% success rate in successfully claiming R&D tax credits for our clients under both SME and RDEC schemes.
Please conact [email protected] and we can discuss your business and R&D relief that can be claimed in detail.