What is R&D Tax Relief?
Research and Development (R&D) tax relief is a valuable way the UK Government aims to encourage growth and reward companies investing in innovation. By seeing whether your company qualifies for R&D tax relief, you can help financially support your business and re-invest more money into innovation and growth.
To be eligible for R&D tax relief your business must
Be a limited company
Have undertaken research and developement
Have spent money on research and development
Learn more about the type of projects that qualify in your sector.
R&D Tax Relief Explained
How does R&D tax relief work?
The benefit comes in the form of a corporation tax liability reduction and/or a direct payout from HMRC. If your business is spending money on developing new products, processes or services, or modifying existing ones, you can apply for R&D tax relief to receive reduction in your CT and/or cash payment.
Who can claim R&D tax relief?
It is often thought that only businesses undertaking traditional lab work qualify for R&D, but actually that couldn’t be further from the truth. R&D occurs in any sector, you can learn more about the types of projects that qualify for R&D tax relief in our Industry tab. From recruitment, to tea making to construction and financial services there is always room for innovation.
What is an R&D project?
For tax purposes, R&D takes place when you are creating something that will advance the overall knowledge or capability in the field of science and technology. In simple terms, if you are solving industry problems, creating new software, process or materials or anything that could be considered Intellectual Property, you qualify. Alternatively, you can simply be changing or modifying existing existing products, processes or services, these activities may qualify.
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An R&D project does not have to be successful in order to apply for an R&D claim, as long as there was an attempt to resolve an uncertainty.
Although often not apparent at the time, when businesses attempt to overcome an issue or an uncertainty in their field, as a whole they are achieving an advancement in science or technology. These advances take the form of either an extension in the overall knowledge or capability in the field or improvements of a device or process. Yet, businesses often just think of it as problem solving.
Claims can be made within two years of the end of their related accounting periods and the benefit which can be expected will depend on whether you are claiming under the SME R&D Scheme or the RDEC.
The SME R&D tax credit scheme and the RDEC scheme are both UK Government R&D tax relief initiatives that address different types of companies. What qualifies as an R&D project is the same for both schemes, the main differences are in terms of their eligibility criteria, the amount of tax relief available and what are the qualifying costs. To learn more about the key features we suggest you read this article.
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What R&D Tax Relief scheme
A company that is undertaking innovative research and development work may be eligible to claim R&D Tax Relief under one of two schemes. The scheme that is right for your business will largely depend whether you are an SME or a large company.
SME R&D Relief
- Must be a limited company based in the UK that has been trading for at least a year.
- Less than 500 staff
- A turnover of under £85 million a year.
- Companies that do not meet the above SME criteria are classified as ‘large companies’.
Although there are a few factors that may restrict SME’s from claiming under the SME R&D Scheme, such as grants and subcontracting. Instead, the claim must be made via the RDEC scheme. Novel specialises on SME R&D claims, helping our clients save millions of pounds from their R&D work, even those claiming through the RDEC scheme. With the potential to transform your business and provide a valuable cash injection, at Novel, we know where to push a little harder to get you the maximum claim possible so get in touch to see how we can help you claim R&D tax relief.
Click to find out how we claim up to thousands and millions of pounds for our SME R&D clients.
R&D Tax Rates
The rate of relief that companies can claim depends on the size of the company, and whether the company has received a grant or is a subcontract. On average, SMEs are able to claim up to £33 for every £100 spent on qualifying R&D activities. Large companies are able to claim up to £10 for every £100 spend on qualifying R&D activities. The table below outlines the R&D tax rate is accurate to April, 2020.
|Describe Your Company||SME R&D Tax Relief Scheme||RDEC|
A profit-making company SME
Up to 25%
A loss-making SME
Up to 33%