If your company’s projects in the UK focus on research and development (R&D), you may be eligible for R&D tax relief. However, this relief is only available if you meet certain conditions set out in the legislation. Depending on the size of your company and the nature of your projects, you may be eligible for different types of tax relief.
What is R&D Tax Relief?
R&D tax relief in the UK is a tax incentive for research and development activities, allowing you to deduct related costs from your personal income tax (PIT) or corporation tax (CIT). The relief is also available to companies working on innovative projects in science and technology or demonstrating progress in their field. Importantly, R&D relief is available even for unsuccessful projects.
When Can You Benefit from R&D Relief in the UK?
To benefit from the relief, you must be undertaking a project (or part of it) aimed at making advancements in science or technology. Projects in the social sciences, economics, and theoretical fields are excluded from eligibility.
The project may involve the development or research of a new process, product or service, or the improvement of an existing one. When applying for the grant, you must explain how your project will contribute to scientific or technological progress, and what problems it will address and how.
In addition, the advancement must relate to the field as a whole, not just to your company. You must explain why a specialist in your field could not easily have made the same advances, and provide research, testing and analysis to support your achievements.
Types of R&D Relief in the UK – What Are Your Options?
There are several types of relief depending on the size of your company and whether the project was subcontracted or not.
Firstly, there is relief for small and medium-sized enterprises (SMEs) – those with fewer than 500 employees and a turnover of less than €100 million. In this case, the relief allows you to deduct an additional 130% of qualifying costs from your annual profits, on top of the standard 100%, giving you a total deduction of 230%
In addition, if your company is loss-making, you can claim a tax credit of 14.5% of the loss you are able to surrender.
For larger companies, there is the Research and Development Expenditure Credit (RDEC). This credit replaces the relief previously available under the large company scheme. It is important to note that if work on a project is subcontracted, it will be treated as the work of a large company. From 1 April 2020, the RDEC will be 13% of your qualifying R&D expenditure.
Take Advantage of R&D Tax Relief
Just because you’re carrying out or planning R&D projects doesn’t automatically mean you’re eligible for R&D tax relief. To benefit, you must meet the relevant criteria and ensure that your business and research activities qualify for the right type of relief. Want to make sure you’re eligible and claiming the right relief? Take advantage of our tax advice services and we’ll clear up any doubts and handle the paperwork for you.
