What are they?
Research and Development (R&D) Tax Credits can be claimed by companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.
The company may be able to claim corporation tax relief or a cash tax refund if your project meets HMRC’s definition of R&D.
The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology.
The project must relate to your company’s trade - either an existing one or one that you intend to startup based on the results of the R&D.
Your project may research or develop a new process, product or service or improve on an existing one.
You can make a claim for R&D relief up to 2 years after the end of the accounting period to which it relates.
What are the types of relief?
There are different types of R&D relief, depending on the size of your company and if the project has been subcontracted to you or not.
Small and medium-sized enterprises (SME) R&D Relief
You can claim SME R&D relief if you’re a SME with:
- less than 500 staff
- a turnover of under 100 million euros or a balance sheet total under 86 million euros
You may need to include linked companies and partnerships when you work out if you’re a SME.
SME R&D relief allows companies to:
- deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
- claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
Research and Development Expenditure Credit (RDEC)
Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects.
It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
The RDEC is a tax credit, the credit was 12% of your qualifying R&D expenditure from 1 January 2018 to 31 March 2020. It was increased to 13% from 1 April 2020.
Will Covid-19 Government grants affect R&D tax credit claims?
If your company has claimed any Covid-19 related government grants that directly relate to a project undertaken as part of the R&D activity this may have an impact of the amount of R&D tax relief that can be claimed.
If any of the following apply directly to R&D projects then R&D under the more generous SME scheme cannot be claimed on that project:
- Bounce Back Loans (BBL),
- Coronavirus Business Interruption Loan Scheme (CBILS)
- Coronavirus Large Business Interruption Loan Scheme (CLBILS)
Where the company has furloughed workers who would directly be working on a qualifying R&D project, the staff costs for furloughed periods would be excluded from claims, even if the company has incurred the costs of topping up furloughed wages. The exception to this is holiday and sick pay.
However an RDEC claim can still be made on qualifying costs even if your company has claimed government grants that directly relate to your R&D project. The claim under RDEC is not as generous.
R&D is assessed on a project basis – some projects may not have state-aid, therefore it is important to keep good records and ensure that if state aid has been claimed that you know exactly what it has been spent on.
How can we help?
We can help you calculate your potential R&D claim, advise you on what expenditure is allowable on your R&D claim and make the claim through your corporation tax return.
We can also advise you how the new R&D SME PAYE cap which is being introduced from April 2021 could affect your claim.
Get in touch with Ian Timms, Head of Business Tax, to find out how we can help.
First published 27 November 2020
Last Updated 27 November 2020
27 November 2020
Find out more about Ian Timms