About R&D tax relief

Research and development tax relief was introduced in 2000 as a way of rewarding businesses that were investing in research and development.

The tax credits allow companies that incur costs whilst developing new products, processes or services to claim the rebate as a cash payment or tax deduction (depending on your circumstances). Across the UK, the average SME claim is approximately £55,000* – therefore a great source of funding for many businesses.

R&D tax relief schemes

There are two schemes for R&D tax relief, and depend on the size of your company.

  • SME scheme – this scheme is applicable for companies with:
    • Less than 500 employees
    • An annual turnover of less than €100 million
    • Balance sheet assets less than €86 million
  • Large company scheme – for employers exceeding the parameters of the SME scheme.

The allowance for claims differ between the two schemes – with companies falling under the SME scheme able to claim 230% of allowable R&D costs, and those under the large company scheme are able to claim 130% of allowable R&D costs.

Qualifying activity

The Government have guidelines and definitions regarding what qualifies for R&D tax relief. Whilst HMRC’s guideline are extensive, we have summarised what usually qualifies as allowable R&D costs:

  • Employee costs
  • Subcontractors
  • Heat, light and power
  • Staff providers
  • Materials
  • Software
  • Capital expenditure (e.g. building/ equipment used for R&D)

Timing

Your accounting period can affect your R&D claim, as you are able to retrospectively claim for 2 years. For example, if you have a 31 December year end, on the 29 December you would be able to claim for your previous year end, and the one before (and then again after 31 December had passed). However, leave your claim until 2 days later, and your accounting period has passed, you would only be able to claim for the previous two year end periods, one being the one just passed and the previous. Timing is essential – if you’re coming up to your next year-end we suggest contacting us as soon as possible so we can begin your claim.

*(Numbers obtained from HMRC report: Evaluation of Research and Development Tax Credit published September 2016).

Find out more about our in-house team of R&D tax specialists.