Companies are currently able to claim tax credits for their Research & Development in the UK via two routes, both administered by HMRC. These UK government incentives are designed to encourage innovation by rewarding businesses who work to improve or overcome challenges and uncertainties in their products and processes.
One route is for small and medium size businesses (SMB), the ‘SME R&D tax credit scheme’ (in the UK SME stands for small and medium enterprises). Whilst for larger companies it’s the ‘Research and Development Expenditure Credit (RDEC)’.
Which UK R&D Tax Credits Scheme is Right for Me?
Usually it is the size of your business that decides which scheme to use, but there are other factors that need to be taken into account so it’s important to get specialist advice.
What is the Value of R&D Tax Credits in the UK?
The calculation for SMBs means that companies could claim back up to 33% of the amount they spent on qualifying R&D, however for expenditure on or after April 1, 2023, the rates will be lowered. From that date, the maximum will be 18.6% for companies with revenue loss, or up to 27% if the company is R&D intensive. For tax purposes, an R&D intensive SMB has qualifying expenditure which represents 40% or more of their total expenditure.
For SMBs the enhancement rate for R&D expenditure on or after April 1, 2023 will be 86% (reduced from 130%) and the tax credit rate reduced to 10% (from 14.5%). R&D intensive companies can still claim a tax credit at 14.5%.
For companies who claim under the RDEC scheme the expenditure incurred on or after April 1, 2023 will increase from 10% of their R&D spending refunded up to a rate up of 15%.
R&D Tax Credits for SMBs
In the UK, the ‘SME R&D tax credit scheme’ means you can currently claim tax relief of up to 33% on your qualifying R&D expenditure incurred up to March 31, 2023. After that date, new rates will apply.
A company is classed as an SME for the purposes of R&D tax credits if they employ fewer than 500 employees and have, either an annual turnover under €100 million or a balance sheet under €86 million.
The UK Research and Development Expenditure Credit (RDEC)
The increases to the RDEC rate over recent years means that now companies can get over 10% of their R&D expenditure incurred up to March 31,2023, refunded. For expenditure after this date the R&D tax credit calculation will increase the tax refund up to 15%.
Do You Think You Could be Eligible for R&D Tax Credits in the UK?
Your business may be eligible for R&D tax credit in the UK if you:
- Design and make new products
- Seek to improve processes, services, materials or devices
- Make prototypes or carry out testing
- Develop software or IT solutions
- Have invested in failed projects or developed products that never make it to market
- Employ any staff with a technical or scientific background
Which Expenditures Qualify for R&D Tax Credits in the UK?
R&D is said to take place, for tax purposes, when a project seeks to achieve an advance in overall knowledge or capability, in a field of science or technology.
You may be able to claim UK R&D tax credits against costs incurred on your R&D project including:
- Employment costs to the company including salaries, bonuses, some reimbursed costs, employers Class 1 National Insurance contributions, employers pension fund contributions
- Subcontractor costs (certain restrictions apply if you are claiming under the RDEC scheme)
- Externally Provided Workers (EPWs)
- Software (revenue costs)
- Consumable items including materials and utilities like light and heat
- Clinical trials volunteers in the pharmaceutical industry
Further R&D related expenditure will also be allowable for full accounting periods starting on or after April 1,2023.
- Data licenses
- Cloud computing
How are R&D Tax Credits Paid in the UK?
If your company is liable for corporation tax, then R&D tax relief may reduce your company’s tax bill. Or alternatively if you make a loss, you could surrender this loss and claim a tax credit. The R&D schemes mean that companies with no corporation tax liability can benefit through a cash payment or a reduction of tax.
Why Source Advisors?
- Source Advisors has provided specialized tax services to CPAs and their clients for over 40 years
- 350 years of R&D experience and over 10,700 studies completed
- Over $1.6 billion in credits claimed
- Ability to leverage existing knowledge of US research activities to streamline the UK R&D study process
- GovGrant, a Source Advisors company, has been leading the way on R&D tax relief in the UK for over 15 years.
- GovGrant has delivered £300m+ of claim benefit to clients in the UK
- 8,500+ UK claims have been successfully processed by GovGrant
Would you like to discuss UK Tax Credits? Ask Eric Larson for an introduction to CEO, Gov Grant Luke Hamm.
OR SUBMIT WRITTEN REQUEST TO: https://sourceadvisors.com/tax-connections-contact/
