R&D TAX
CREDITS
R&D TAX
CREDITS
WHAT IS R&D TAX CREDITS?
Here’s a few things you need to know about R&D Tax Credits:
About R&D Tax Credits
As a tax incentive from the UK Government, R&D Tax Credits is meant to encourage organizations and companies alike to invest in R&D. This has been going on since 2000 with considerable results, especially since over 45,000 UK companies last year have claimed almost £4.5 billion in tax relief. However, only select companies are qualified, meaning it’s not available to partnerships or sole traders. The tax relief encouraged by R&D is used for a number of reasons, mainly reducing tax bill or paying in the form of cash credits for companies making a loss.
WHAT IS R&D TAX CREDITS?
Here’s a few things you need to know about R&D Tax Credits:
About R&D Tax Credits
As a tax incentive from the UK Government, R&D Tax Credits is meant to encourage organizations and companies alike to invest in R&D. This has been going on since 2000 with considerable results, especially since over 45,000 UK companies last year have claimed almost £4.5 billion in tax relief. However, only select companies are qualified, meaning it’s not available to partnerships or sole traders. The tax relief encouraged by R&D is used for a number of reasons, mainly reducing tax bill or paying in the form of cash credits for companies making a loss.
Benefits of R&D Claims
There are two main benefits of R&D claims: increasing taxable losses and reducing taxable profits. Additionally, having this claim allows you to reduce profits, increase pre-existing losses or create a loss. Having a claim for R&D tax relief has three main types of tax benefit, which are as follows:
Payable cash credit
When it comes to loss-making SMEs, this benefit of payable cash credit isn’t necessarily treated as taxable income. For large company making a loss, the cash credit due is seen as taxable income.
Enhanced deduction
This type of benefit is carried forward. For other companies, they don’t have a choice but to keep the relief for future cases. Some companies, on the other hand, will only choose to do so in the event that they’re able to pay tax at a higher rate in the future.
Rebate of corporation tax
Within the previous two years of paying tax, companies are able to roll back the relief to get a rebate of Corporation Tax, which is defined as the tax they wouldn’t have paid had they made the claim at that time.
Benefits of R&D Claims
There are two main benefits of R&D claims: increasing taxable losses and reducing taxable profits. Additionally, having this claim allows you to reduce profits, increase pre-existing losses or create a loss. Having a claim for R&D tax relief has three main types of tax benefit, which are as follows:
Payable cash credit
When it comes to loss-making SMEs, this benefit of payable cash credit isn’t necessarily treated as taxable income. For large company making a loss, the cash credit due is seen as taxable income.
Enhanced deduction
This type of benefit is carried forward. For other companies, they don’t have a choice but to keep the relief for future cases. Some companies, on the other hand, will only choose to do so in the event that they’re able to pay tax at a higher rate in the future.
Rebate of corporation tax
Within the previous two years of paying tax, companies are able to roll back the relief to get a rebate of Corporation Tax, which is defined as the tax they wouldn’t have paid had they made the claim at that time.
SMEs and Large Companies
SMEs refer to companies that have fewer than 500 FTE staff. This type of company satisfies at least one of the following conditions: revenue less than €100m / balance sheet assets less than €86m. They are the only ones that are able to access the SME scheme. The terms and conditions under this scheme is that the rate of relief can reach up to 230%. Moreover, the lossmaking SMEs can choose to give up their losses for a payable cash credit from HMRC.
On the other hand, a Large Company refers to companies that have 500 or more FTE staff. But they can also have less than 500 staff but have a revenue that is greater than €100m and balance sheet assets greater than €86m. In certain conditions, SMEs may also need to claim under the RDEC scheme.
SMEs and Large Companies
SMEs refer to companies that have fewer than 500 FTE staff. This type of company satisfies at least one of the following conditions: revenue less than €100m / balance sheet assets less than €86m. They are the only ones that are able to access the SME scheme. The terms and conditions under this scheme is that the rate of relief can reach up to 230%. Moreover, the lossmaking SMEs can choose to give up their losses for a payable cash credit from HMRC.
On the other hand, a Large Company refers to companies that have 500 or more FTE staff. But they can also have less than 500 staff but have a revenue that is greater than €100m and balance sheet assets greater than €86m. In certain conditions, SMEs may also need to claim under the RDEC scheme.
Research and Development Credit Scheme
RDEC, known as the Research and Development Credit scheme, the RDEC was introduced last April 1st 2013 for any R&D expenditure being claimed under the large company scheme. It allows large companies, and SMEs forced to claim under RDEC, to obtain a payable cash sum, provided that they are loss-making or an offset of tax payable in the event that they are profitable. Since 1st April 2016, the RDEC scheme has replaced the Large Company Scheme. Additionally, the value of the ATL tax credit has been calculated at 11% of qualifying R&D expenditure. But considering that this is “above the line”, the credit is still subject to tax.
Research and Development Credit Scheme
RDEC, known as the Research and Development Credit scheme, the RDEC was introduced last April 1st 2013 for any R&D expenditure being claimed under the large company scheme. It allows large companies, and SMEs forced to claim under RDEC, to obtain a payable cash sum, provided that they are loss-making or an offset of tax payable in the event that they are profitable. Since 1st April 2016, the RDEC scheme has replaced the Large Company Scheme. Additionally, the value of the ATL tax credit has been calculated at 11% of qualifying R&D expenditure. But considering that this is “above the line”, the credit is still subject to tax.
What Business Activities Are Considered R&D?
It’s important to know what type of activity are considered for R&D as people’s assumptions may differ with HMRC. This could lead to having lost time or in the worst case scenario, an HRMC investigation.
Qualifying R&D activity refers to:
- Being undertaken in almost any type of industry
- Trying to make something cheaper, faster, smaller, larger, longer, etc.
- Duplicating a product, process, service or device in an improved manner
HMRC outlines specific activities that are considered R&D. This includes when a company is:
- Working to overcome technological challenges
- Figured out an advancement in technology
- Pursuing R&D even if the project is not successful. What matters is the attempting of advancement within an industry.
What Business Activities Are Considered R&D?
It’s important to know what type of activity are considered for R&D as people’s assumptions may differ with HMRC. This could lead to having lost time or in the worst case scenario, an HRMC investigation.
Qualifying R&D activity refers to:
- Being undertaken in almost any type of industry
- Trying to make something cheaper, faster, smaller, larger, longer, etc.
- Duplicating a product, process, service or device in an improved manner
HMRC outlines specific activities that are considered R&D. This includes when a company is:
- Working to overcome technological challenges
- Figured out an advancement in technology
- Pursuing R&D even if the project is not successful. What matters is the attempting of advancement within an industry.
Does your business qualify for a R&D tax rebate?
Take our free claim assessment quiz to find out if your business qualifies for a R&D claim today
Does your business qualify for a R&D tax credit?
Take our free claim assessment quiz to find out if your business qualifies for a R&D claim today
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Copyright © R&D Advisers. All Rights Reserved.
DISCLAIMER
By completing any form on our website, you will be contacted by our in-house team of R&D tax rebate specialists. We use the information you have provided to contact you regarding a potential rebate you are enquiring. Any claims made on our website are based on existing clients or industry knowledge. Please understand that results vary and are not typical, nor are we implying your business will be entitled to any amounts referenced. Your claim (if eligible) will be based on your business circumstances.
© R&D Advisers. R&D Advisers is a trading name of RD Advisers Ltd. are registered in England, company registration number 13592699, Information Commissioner's Office registration number A9081829.
Follow Us
Copyright © R&D Advisers. All Rights Reserved.
DISCLAIMER
By completing any form on our website, you will be contacted by our in-house team of R&D tax rebate specialists. We use the information you have provided to contact you regarding a potential rebate you are enquiring. Any claims made on our website are based on existing clients or industry knowledge. Please understand that results vary and are not typical, nor are we implying your business will be entitled to any amounts referenced. Your claim (if eligible) will be based on your business circumstances.
© R&D Advisers. R&D Advisers is a trading name of RD Consultancy Ltd. are registered in England, company registration number 14601229.