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R&D Tax Credits

Encouraging Investment in Innovation

Research and development tax credits are a generous tax relief available to innovative companies. The relief operates either by reducing the claimant company’s corporation tax liability or, in some circumstances can result a cash payment from HMRC. The aim of this relief is to assist companies to be innovative and essentially provides a form of funding to companies who are attempting to advance scientifically or technologically.

This relief is available to companies in any sector as long as they can demonstrate that a project has been carried out which aimed to resolve a scientific or technological uncertainty. The relief is therefore not limited to the development of brand new products, and many companies have historically missed out on a claim where a product or process has been developed in order to make it superior and that development required a scientific or technological uncertainty to be resolved.

The rate of relief is dependent on the size of the company and also whether or not any additional grant funding has been received. The two schemes available are the SME or Large company scheme.

The SME scheme operates by providing “super” deduction on qualifying expenditure. A company with qualifying expenditure of £100,000 on eligible R&D could save corporation tax of up to £26,000. Where the extra deduction creates or increases a tax loss it may be possible to surrender the loss and receive a cash repayment instead. A company with qualifying expenditure of £100,000 and losses in excess of that figure can obtain a cash repayment from HMRC of up to £33,350.

The regime for large companies or those who receive grant funding is less generous, but nevertheless very worthwhile. The above the line tax credit introduced in 2013 now provides for a credit to be paid to the claimant company on qualifying expenditure, albeit using a smaller percentage of the qualifying costs.

The government want qualifying companies to claim this relief and having experience of submitting claims for our clients spanning 10 years, we have built up a relationship with the specialist R&D unit, in order to get the claims we submit handled quickly by HMRC.

For more information, please contact Phil Hartley below.

Written 5 February 2018.