What are they?
They are an enhanced tax relief given to companies that spend money on new systems, products or services.
Two schemes to choose from:
- Large Company Scheme aka Research and Development Expenditure Credit (RDEC) Scheme
- Small or Medium-sized Enterprise (SME) Scheme.
What’s in it for SMEs?
A generous 230% rate of tax relief available on all qualifying Research and Development costs for all qualifying SMEs.
For example, you spend £100 on R and D and your taxable profits fall by £230. Alternatively, if you spend £100,000 on R and D then you will save £46,000 in Corporation Tax at 20%.
What’s more, even after the enhanced relief is claimed your SME is loss making – you can either carry the loss to the previous 12 months or carry it forward against future trading profits. Visit https://www.dsmranddtaxcredits.co.uk/ for an example of how this can work in practice.
How do large companies benefit?
The enhancement rate on the Large Company Scheme is 30% and you can only claim this up to 31st March 2016.
If after the enhanced relief is claimed your SME is loss making – you can either carry the loss to the previous 12 months or carry it forward against future trading profits.
The Research and Development Expenditure Credit (RDEC) Scheme
The RDEC Scheme, launched in April 2013, allowed loss making companies to claim a cash credit.
Before April 2016, companies could choose between RDEC and the Large Company Scheme and determine which scheme was best value for them. Now, the RDEC scheme is the only option for a large company.
The RDEC is taxable and companies with no Corporation tax liability will receive the net amount.
How do you qualify?
HMRC defines the aim of an R and D project will be, “the resolution of scientific or technological uncertainty”.
If your company invests in solving a problem with technological development then they qualify. The good news is that you may be even working on qualifying projects without even knowing and you don’t need to be working on anything new. As long as the answers cannot be found easily elsewhere you will qualify.
What evidence does HMRC need?
For a successful claim you need to answer a few questions:
- What is the technological or scientific advance?
- What ‘uncertainties’ were you exploring?
- Why didn’t you get the information from another professional?
- How and when did these ‘uncertainties’ get resolved?
What if your project fails?
The great news – it doesn’t matter!
You get R and D Tax relief even if the project fails. Innovative solutions warrant the tax credit, not the scientific or technological achievements themselves.
What are the eligible costs?
The eligible costs are:
- Staff – direct employees. NICs and gross salary.
- Clinical trials
- Staff providers