Print

What's Research and Development (R&D) relief? How to claim R&D relief? How does small company R&D relief work? Can individuals claim R&D relief?

Qualifying expenditure on Research and Development (R&D) attracts four different forms of tax relief for Corporation Tax.

Additionally, there are R&D capital allowances.

R&D information on this site is split into freeview guides, guides for subscribers of www.rossmartin.co.uk and our premium content R&D Zone. Subscribers, click here for your detailed version of this guide.

At a glance

At a glance

This note focuses on relief for SMEs, although noting that the large company scheme applies to SMEs in certain circumstances (see Subscriber version for large companies).

Click here for Patent Box.

R&D relief is given in two different ways, by enhanced deduction or by payable credit.

The amount of relief given depends on when the R&D expenditure was incurred:

Relief

From 1 April 2020 From 1 Jan 2018 From 1 April 2015 From 1 April 2014  From 1 April 2013

1 April 2011 to 31 March 2012

Enhanced deduction rate

230% 230%

230%

225%

225%

200%

Payable credit

14.5% 14.5%

14.5%

14.5%

11%

12.5%

Above the line expenditure credit (RDEC) 

13% 12%

11%

10%

9.1%

 

In order to claim relief, a company must have been engaged in qualifying R&D activity and then satisfy a number of specific conditions.

 Special rules and conditions

To claim relief:

Until 31 March 2012, the company must have incurred a minimum of £10,000 of qualifying expenditure on R&D projects (this requirement is removed from 1 April 2012).

Vaccines - restriction
The deduction available under Vaccine Research Relief for SMEs was removed from 1 April 2012 and the relief was completely abolished by Finance Act 2016 with effect from 1 April 2017.

What's new?

Increase in the R&D Expenditure Credit 
The repayable Expenditure Credit increased to 13% from 1 April 2020, see RDEC Scheme.

Preventing abuse of R&D relief by SME's
At Budget 2018 the chancellor announced new measures to prevent the abuse of R&D relief by SMEs. 

It is proposed that from April 2021 (previously April 2020):

Past changes

Overview and FAQs

From 1 April 2015, SME companies that have incurred costs on qualifying R&D projects can obtain an uplift on these costs of 230%. It means that if a company spends £100, it will receive tax relief as if it had spent £230. Prior to 1 April 2015 the rate was 225% (see Rates in At a glance).

Where a company has unrelieved trading losses it may surrender the R&D tax relief in exchange for a tax credit.

A claim for R&D must be made within two years of the end of the accounting period in which the costs were recognised.

What is an SME?

Since August 2008 the definition of an SME is taken as a company with fewer than 500 employees and a turnover limit of €100 million or a balance sheet total not exceeding €86 million. Prior to this, the thresholds were €250, €50 million and €43 million respectively.

Definition of R&D

R&D is defined in accordance with general accounting practice but is further modified by the guidelines produced by the Department of Trade and Industry (DTI) in 2004. In general, there must be uncertainty that the final objective can be achieved and there must be an advance in science or technology through the resolution of scientific or technological uncertainty. The knowledge being sought must also not be already available in the public domain.

Qualifying costs

The company must have incurred qualifying expenditure on R&D projects.

Government grant funding (notified state aid) provided for R&D projects must be excluded from any R&D claim. An SME may claim enhanced relief under the large company R&D scheme, currently at 130%. Where other grants or subsidies have been received, the SME relief may be claimed on the net amount. Relief under the large company scheme may be claimed on the subsidised expenditure, provided it qualifies as tax-deductible in the normal way. From 1 April 2016, the uplift in costs can no longer be claimed. Only the repayable Expenditure Credit is available (see the Subscriber version for details of the Large Company Scheme).

Qualifying costs must have been incurred and cannot be of a capital nature. Revenue costs that have been put to the balance sheet can still be included within the R&D Claim. Capital costs relating to R&D work qualify for capital allowances at 100%.

Qualifying revenue costs include:

From 1 April 2015, there is a restriction on expenditure in respect of consumable items that qualify for R&D tax credits where the company sells the products of its R&D activity as part of its normal business. 

The R&D report

A report should be filed as part of the company tax return as it is current HM Revenue Customs (HMRC) practice to open an enquiry where no report is supplied. 

Where a company has been contracted to carry out R&D work and cannot make a claim under the SME rules, it may be possible to claim under the large company rules. Where this applies, the uplift in costs up to April 2016 is 130% and any trading losses cannot be surrendered in exchange for a tax credit. From 1 April 2016, the uplift in costs can no longer be claimed. Only the repayable Expenditure Credit is available (see Subscriber version for details of the Large Company Scheme).

Assistance from HMRC

HMRC has several specialist units across the UK which are available to assist with R&D claims.

In November 2015 HMRC introduced an R&D Advance Assurance scheme for companies claiming R&D for the first time. Where assurance is given, the company will face no further enquiries into its claims for the first three accounting periods.

Links

See Subscriber version of this note.

Our R&D guides:

Help & Support

Need assistance?

Making a complete and successful R&D claim takes times and requires know-how. Contact the Virtual Tax Partner support service for cost-effective assistance in: