Research and Development (R&D) Relief is a corporation tax relief that may reduce your company or organisation’s tax bill by more than your actual expenditure on allowable R&D costs.
If your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue & Customs (HMRC)
But your company or organisation can only claim R&D Relief if it’s liable for corporation tax.
The small and medium-sized enterprise scheme
This scheme has higher rates of relief. From 1 August 2008, the tax relief on allowable R&D costs is 175 per cent – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £75 on top of the £100 spent. It also includes a payable credit in some circumstances.
If your company is small or medium-sized, then you can only get paid tax credit if your are a going concern. This means its latest published accounts were prepared on a going concern basis, and nothing in the accounts suggests that its status (as a going concern) depends on it receiving R&D relief or tax credits. If your company or organisation ceases to be a going concern after making a claim but before any credit is paid, HMRC treats the claim as if it has not been made and you can’t get tax credit.
Which R&D projects might qualify relief?
Your company or organisation can only claim for R&D relief if an R&D project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty – and not simply an advance in its own state of knowledge or capability. See below for how to find out what this means and how to show a project meets these terms.
Furthermore, for accounting periods ending before 9 December 2009, the project must satisfy both of the following conditions:
- it must be related to your company or organisation’s trade – either an existing one, or one that you intend to start up based on the results of the R&D
- if your company or organisation is claiming relief under the SME Scheme, it must own any intellectual property that might arise from the project
For accounting period ending on or after 9 December 2009, only the first condition applies.
For further information on the R&D tax credit schemes visit the HM Revenue & Customs website.
Alternatively, you can telephone one of the specialist R&D units. The units to contact depends on your tax district and details are on the above website. You should talk to your chartered accountant who may have experience of dealing with other companies’ R&D tax credit claims and who will be aware of your company’s circumstances. The definition of what is eligible R&D expenditure is very strictly applied and can become quite technical.