Tax credits are available on research and development (R&D) spending for small and medium-sized enterprises (SMEs) in the UK.
The tax relief on allowable R&D costs is 230% - that is, for each £100 of qualifying costs, the company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.
The aim of the Research and Development (R&D) Tax Credit for SMEs scheme is to encourage small and medium sized firms (SMEs) to undertake or increase research and development. The R&D tax credits allow for enhanced tax relief for certain R&D spending in two ways:
- An increase in the tax relief SMEs can claim for their qualifying R&D expenditure from the usual R&D Allowance of 100% to 175%.
- A payable R&D tax credit for companies not in profit through a cash payment of £24 for every £100 spent on qualifying R&D.
The Government aims to create a favourable business climate for businesses to innovate in the UK. SMEs wishing to undertake R&D can face particular difficulties. Smaller companies are historically the least well able to sustain this necessary investment over long periods of time, and do not necessarily have access to funding support. This scheme aims to help overcome these barriers to encourage R&D, since R&D can help create:
- New and more competitive products, services and processes.
- New markets.
- High-quality employment opportunities for skilled people.
This scheme is not available to individuals or partnerships.
- The company must meet the programme's extended definition of an SME:
- Less than 500 employees.
- An annual turnover less than €100 million.
- A balance sheet totalling less than €86 million.
- The company must be spending at least £10,000 on R&D.
- The R&D does not have to be undertaken in the UK.
- The company will be entitled to the ownership rights of any intellectual property which arises from the R&D.
- The expenditure cannot have been met by a third party.
Costs of research and development.
This is a rolling programme with no set deadlines.
Interedted parties are advised to contact HM Revenue & Customs for further information. People are advised to contact their tax inspector.
Claims for the R&D tax credit (including the payable R&D tax credit) would be made by an eligible company in the company's tax return.