How do R&D tax credits work?
When looking at how R&D tax credits work, it is important to appreciate that an R&D tax relief specialist will be able to provide comprehensive feedback as to the eligibility of your company’s projects. R&D tax credits are available to UK businesses that are liable to corporation tax and who have incurred eligible expenditures attempting to create a technological or scientific advance. Before making your first claim for R&D tax credits, you should additionally know that:
- R&D tax credits can be claimed for developing new products, processes or services.
- They can also be claimed for work on existing products, processes or services.
- R&D tax credits is potentially available in every sector.
- Companies can claim for the past two years accounting periods retrospectively.
To learn more about how research development tax credit applications work, contact our R&D tax specialists by clicking the button below.
What counts as R&D
When beginning to analyse eligible projects for R&D tax relief it is important to identify projects whereby a competent professional has faced a technological or scientific uncertainty and as a result has attempted to create a scientific or technological advance to overcome these uncertainties.
When completing a R&D tax relief Technical Report for our clients, we will demonstrate what the baseline knowledge in your industry was at the time of the project. What was the technical or scientific uncertainty faced by the competent professionals in question and the attempt to overcome these uncertainties by making a technical or scientific advance.
The best way to confirm that your R&D tax claim is legitimate is to work with an R&D tax specialist. Contact us today via the button below to arrange a consultation.
SME vs Large Company
HMRC defines a large company (under R&D tax law) as one with either:
- More than 500 employees
- Or an annual turnover of over €100 million
- And a balance sheet of over €86 million
- A business below these thresholds counts as an SME
There are a few extra factors that will dictate if you your company will be defined as an SME or Large Company for R&D Tax Relief. As a standard part of our review process, we will establish how your business will be defined at the beginning of the project.
What will be the value of our R&D Tax Credit Claim?
Regardless of whether you are claiming under the SME or RDEC scheme, the value of your R&D tax credits is calculated as a percentage of how much you have spent on eligible R&D. The benefit will by way of a corporation tax rebate or reduction in your corporation tax liability or if you are a loss making SME you will actually receive a cash credit payment from HMRC. For some SME’s it will be a combination of ways in which your business will receive the financial benefit.
For expenditure incurred on or after 1 April 2023, the RDEC rate has increased from 13% to 20%. At the same time, the enhancement rate for SMEs has been reduced from 130% to 86% and the credit rate from 14.5% to 10%.
An additional enhanced rate of relief for R&D intensive loss-making SMEs was announced in the Spring Budget in March 2023. SMEs for which qualifying R&D expenditure constitutes at least 40% of total business expenditure will continue to be able to claim a payable credit of 14.5%.
The tax credit can be claimed against all eligible R&D spending, and all businesses have the same R&D tax relief rates. They are as follows:
- For RDEC, the current rate is 20%.
- Backdated RDEC from 2020 is set to 13%.
- SME R&D tax relief for loss-making companies is up to 25%.
- For profit-making companies, SME R&D tax relief is up to 33%.
To learn more about preparing your R&D tax credit UK return and how to gain the maximum tax relief, call our experts today.