A large number of small and mediums sized enterprises (SME's) are missing out on the Research and Development (R&D) tax relief scheme, where they can obtain tax relief on R&D expenditure with either a 24.7% or 33.35% cash return for every £1 they spend on qualifying costs.
Whilst recently HMRC have been chasing or closing many other tax planning initiatives, this particular scheme is the opposite and HMRC have been actively encouraging SME's to capitalise.
First thing is to establish which type of company you fall under and what rules apply for your bracket. There are two types of relief available:
- SME Tax Credits (STC)
- Research and Development Expenditure Credits (RDEC)
STC Scheme Explained
First you must establish if you qualify as a SME, a company must be:
As well as the criteria above, your company must also be a UK resident trading company (usually excluding partnerships or sole traders). Furthermore, you will also need to include linked companies and partnerships when working out if you qualify as an SME or a large company. Any company not qualifying as an SME will be classed as a large company for R&D and will fall under the RDEC scheme, not as generous but still one of great value especially when it comes to large research projects.
What qualifies as R&D
The R&D must be for a specific project which aims to make an advance in science or technology, excluded sciences are social sciences like economics or a theoretical field such as pure maths.
It must be a project related to your existing registered trade or one you intend to start up as a result of the R&D project results.
To receive the relief you need to explain and demonstrate:
RDEC Scheme Explained
This scheme can also be claimed by SME's and large companies sub-contracted to do R&D work for a large company. This is a tax credit which is:
RDEC is a scheme predominantly used by bigger businesses. The new system also means now large loss-making companies can claim cash receipts from HMRC. The repayment is subject to a PAYE and National Insurance cap, this is to avoid non-UK present organisations claiming cash repayment. Since RDEC is fair to your company’s tax position, the benefits that you receive are easier to forecast. Which provides far greater stability and makes it much easier for larger businesses to factor the relief into their financial decisions.
Learn more about r&D claims
If you would like to learn more about R&D and find out if your business qualifies for either STC or RDEC schemes, reach out to our team for a full business consultation to discover more.