UK: Research and Development (R&D) Tax Credits are a UK tax incentive designed to encourage companies to invest in R&D. It can even be claimed on unsuccessful projects.
Companies can REDUCE CORPORATION TAX or CLAIM PAYABLE CASH CREDITS as a proportion of their R&D expenditure.
The UK government wants to increase the UK R&D base by helping to reduce the cost of corporate R&D and thereby encourage companies to invest in them. In turn, this would increase innovation and wealth creation in the economy.
R&D relief allows companies that carry out qualifying R&D related to their trade to claim an extra CT deduction for certain qualifying expenditure.
To get R&D relief you need to explain how your project:
- is trying to reach and advance in science and technology
- had to overcome uncertainty
- tried to overcome this uncertainty
- could not be easily worded out by professional in the field
The level of relief depends from:
- Revenues
- Number of employees
- Balance sheet assets
| SME Level | RDEC Level (large companies) |
| From 1 April 2015, companies can get a relief to 230% on their qualifying R&D costs | 130% rate of enhanced deduction |
| If companies make losses they could have Payable credit up to £33.35 for every £230 of qualifying expenditure on R&D (up to 14.5% of the surrenderable loss) | Tax Credit for 11% of your qualifying R&D expenditure up to 31 December 2017 and 12% from 1 January 2018 |
| Company can claim for expenditure on R&D it sub-contracts to others | Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D to certain qualifying bodies, individuals or partnerships of individuals |
| Company cannot claim for contributions to independent research | Company can claim for contributions to independent research |
| Claim can be reduced if the R&D project is subsidised or a grant is received in respect of it | No reduction for grant or subsidy |
| The condition requiring ownership of the intellectual property arising out of the R&D has been abolished for accounting periods ending on or after 9 December 2009 | Company need not own the intellectual property arising out of the R&D. |
Qualifying costs
If your company undertakes research and development, you could be eligible for tax relief on the day-to-day running costs associated with R&D.
Your company, may claim for the cost of software if it is provided solely for the R&D project.
Consumable items can be claimed if they are directly employed and consumed in qualifying R&D projects. These include materials and the proportion of water or power bills consumed in the R&D process.
You can also claim staff costs for the below three categories:
- Employees – Company can claim expenses such as wages, national insurance and pension fund contributions.
- Subcontractors – Company can claim 65% of subcontractor costs. However, different rules apply when a contractor is connected to your company.
- Externally provided workers – Company can claim some costs for those who are working directly in R&D, but you can’t claim for recruitment costs.
Costs that do Not Qualify
- Capital expenditure in R&D. However you might be able to claim for the allowance may be due on capital assets, such as plant, machinery and buildings for R&D activity.
- Production and distribution of goods and services.
- The cost of land.
Don’t miss out on your claim
Kelmer London office remains available for any clarification of the procedures above.
One of our experts will ensure that your claim is complete, correct and will withstand a Revenue audit.
You can reach us at:
Telephone: +44 (0)20 7353 9200
Email: london@.kelmer.com