Many clients are often surprised to discover that the scope for identifying R&D relief is huge and it exists in every sector, not just for scientific or research companies.
In the UK, R&D tax relief is available to UK companies that spend money developing new products, processes or services; or enhancing existing ones. It can even be claimed on unsuccessful projects. The product or service developed must be innovative and novel to qualify for the relief. You can make an R&D tax credit claim to claim generous levels of tax relief or to receive either a cash payment. In addition, if you’re making a claim for the first time, you can typically claim R&D tax relief for your last two completed accounting periods.There are two types of relief available: small and medium-sized entities (SME); and large organisations.
SME R&D relief allows companies employing fewer than 500 staff and/or a with turnover of less than 100 million euros or a balance sheet total under 86 million euros, to deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction.
In addition, up to 65% of subcontracted R&D spend can be claimed as qualifying cost under the SME scheme and capital expenditure may qualify for R&D capital allowances, 100% relief is given in the first year. SMEs can also claim a tax credit from HMRC of up to 14.5% of a loss generated and surrendered for cash.
When it comes to large corporations the regime has been made much more generous following the introduction of the Research and Development Expenditure Credit (RDEC).
RDEC allows larger companies to recognise the benefit of their R&D spend effectively as an expense against cost, instead of showing the benefit within the tax line. This helps add visibility. Loss makers are now also able to claim cash back from HMRC.
Expenditure can attract the 12% RDEC credit. Unlike the old R&D scheme, which only had a cash value if the company was paying corporation tax, the RDEC is payable regardless of the tax position, subject to some restrictions including a cap based on PAYE and NI.
At PRIMOtax, we have over 15 years of experience helping clients to identify and maximise their R&D claims. To find out more about the services we offer, give us a call or book an initial 15-minute consultation.