Research & development (R&D)

R&D Tax Credits are an HMRC UK tax incentive, set up in 2000, it is designed to encourage companies to invest in innovation.

They government can offer your business an opportunity to claim back a proportion of your R&D expenditure (science and technology) as tax credits.

R&D can reduce your tax bill or increase taxable losses. This is a valuable government relief that award innovative businesses, companies that spend money developing new products or improving processes and services are eligible for a cash payment or corporation tax reduction. R&D tax rates are equivalent of up to 33p for every £1 of qualifying expenditure. This is used as an alternative for innovation grants for research and development funding, if your eligible you can claim R&D tax for up to two completed financial periods.

SME’s can claim R&D tax relief either as an extra 130% deduction on their costs from their yearly profit or if they are making a loss, they can claim tax credit worth up to 14.5%. Larger companies can claim relief through the research and development expenditure credit, where it is worth 12% of the relevant costs.

Any business can apply for R&D tax relief, as long as they are working on innovative projects in the science and technology sector as long as;

  • The project must be an advancement for the science and technology sector.
  • The project must not have been worked out by a specialist in their field
  • The project must have tried to overcome uncertainty

Tax relief

Tax relief can cover consumable items, software’s and proto types, it can also cover internal and external staffing costs, or any staff that take a ‘hands on approach’ in the project. The only criteria for cost is that they must be used directly on the project.

R&D tax relief is available for both SME’s and larger companies. HMRC will use the following criteria to decide the size of your business

  • Amount of staff
  • Turnover less than £100m or balance sheets less than €86m