R and D Tax Credits

Yes, it’s free money! The relief for SMEs is currently 230%. That means that for every £1 of qualifying expenditure your company makes, it receives an additional £1.30 of relief.
Every £1 spent yields a deduction of £2.30 against taxable profits.
And loss-making companies can claim a repayable tax credit calculated at 14.5%.

Below are the various examples of how a claim value is calculated:

SME Scheme calculation for a company that was profitable and spent £100,000 on qualifying R&D activities each year:
£100,000 x 130% (enhanced rate) = £130,000
£130,000 x 19% (corporation tax rate) = £24,700
Claim value: £24,700

Updated SME Scheme calculation that will take effect in April 2023 due to the planned increase in Corporation Tax:

(Only applicable to companies with an annual profit of over £50,000):
£100,000 x 130% (enhanced rate) = £130,000
£130,000 x 25% (corporation tax rate after April 2023) = £32,500
Claim value: £32,500

SME Scheme calculation for a company that was loss-making and spent £100,000 on qualifying R&D activities each year:

£100,000 x 130% (enhanced rate) = £130,000
£130,000 + £100,000 = £230,000 (enhanced expenditure)
£230,000 x 14.5% (surrender rate) = £33,350
Claim value: £33,350

RDEC Scheme calculation that was either profit or loss making and spent £1,000,000 on qualifying R&D activities each year:

£1,000,000 x 12% = £120,000 (above the line credit)
£120,000 – 19% (corporation tax rate) = £97,200
Claim value: £97,200

There are further factors that can affect how a value of a claim is calculated. For example, if your company’s R&D is subcontracted to another company, you would only be able to include 65% of the subcontracted R&D costs.

What is needed for a successful claim? What are the requirements?

• There must be a project focused on the issue to be resolved
• There must be an intention to achieve an advance in science or technology
• The project must relate to the company’s trade – an existing one or one it intends to start based on the results of the R&D
• The company must explain how its project sought to overcome the uncertainty around the advance it wants to achieve
• The issue must be one that cannot be easily overcome by a professional working in that field
• The process, product, or service can still advance if another company has developed it but isn’t publicly known or available. For instance, there are many companies currently working on both electric cars and driverless cars. They will each be claiming R&D tax relief
• The project can research or develop a new process, product or service, or improve an existing one

What is needed for a successful claim? What are the requirements?

A company is defined as an SME if:

• It has less than 500 members of staff
• It has a turnover of under €100m or a balance sheet total under €86m

Qualifying expenditure

• Staff costs
• Software
• Consumable or transformable items
• Contracted out R&D costs (65%)
• Externally provided workers (65%)

There are also R&D allowances that allow for complete relief for qualifying capital expenditure

Time limit

Two years from the end of an accounting period, in line with the corporation tax return deadline.