Businesses can receive a tax credit for qualifying expenditure on research and development (R&D) depending on the businesses size. As a maximum a company could save £46 of tax for every £100 of qualifying expense.
What qualifies as R&D expenditure?
Simply put, this is expenditure on creative or innovative work in the fields of science and technology, which seeks to resolve scientific or technological uncertainties.
The expenditure must then be:
- Not capital
- Directly attributable to relevant R&D projects undertaken by the firm or on its behalf
- Incurred on any of:
- Staff costs
- Software and Consumables
- Externally provided workers
- Subcontracted R&D work
What is an advance in Science or Technology?
This project must seek to achieve an advance in overall knowledge, and not simply improve the company’s state of awareness. Relief is still available if the project is unsuccessful.
Allowable projects may create something new, make an appreciable improvement to something, or use science and technology to duplicate an existing effect in a substantially new manner. The project does not have to be focussed on a product, the outcome can be a process or a service for example.
Work on developing in house a product which is already available to buy off the shelf would not qualify.
How does the tax credit work for different business sizes?
Small to Medium Enterprises
Small and Medium enterprises may claim an additional 130% of any expenditure on top of the standard deduction against the corporation’s profits. In total 230% of staff costs for example could be deducted for corporation tax purposes.
Loss making SME’s have the option of surrendering qualifying losses for a payable tax credit equal to 14.5 % of the surrendered amount. This credit cannot exceed the R&D relief which has been claimed for the period.
These reliefs are only available where the SME is a going concern, the expenditure is not subsidised, and the total relief does not exceed 7.5 million Euros. Where an SME makes a payment to a subcontractor, only 65% of the amount is liable for extra R&D relief.
Large Companies do not get quite such a beneficial treatment but they have to satisfy fewer conditions. Such companies can claim an extra 30% of any R&D expenditure, on top of the standard deduction.
Is my business considered an SME or a larger company?
When it comes to R&D tax credits, your business will be defined as a Small or Medium Enterprises if you employ fewer than 500 people and satisfy at least one of the following:
- Turnover not exceeding £100 million
- Balance Sheet not exceeding £86 million
Otherwise your company is defined as large and only qualifies for the smaller deduction.
How can Wisteria help?
There are many specific details and complicated cases which can qualify or discount you and your business from receiving R&D tax credits. We would be happy to discuss these in detail over the phone or in a meeting. Please contact us
if you need assistance or would like further information.