SME Businesses Have Been Able To Claim Since 2000
R&D relief under the SME scheme is not available if the R&D project has had the benefit of a grant or subsidy. There may, however, be an alternative claim available to the company. This is known as the Research and Development Expenditure Credit scheme (RDEC). RDEC allows the SME to claim a taxable credit of 11% of eligible expenditure. As this amount is taxable it is known as an 'above the line' credit. This 11% rate is for expenditure incurred on or after 1 April 2015. Prior to that date the rate was 10%.
The credit received is used to settle corporation tax liabilities of the current, future or prior periods subject to certain limitations and calculations. Where there is no corporation tax due the amount can be used to settle other tax debts or can be repaid net of tax.
The RDEC relief is also available to an SME for expenditure incurred on R&D that is contracted to it by a large company.
Research and Development
Research and development (R&D) by companies is being actively encouraged through a range of tax incentives including an increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit. At Innovation Relief Specialists, we can provide R&D advice for your company.
Research and development by UK companies is being actively encouraged by Government through a range of tax incentives. The government views investment in research and development as a key to economic success. It is therefore committed to encouraging more smaller and medium sized ('SME') companies to claim R&D tax relief.
The incentives are only available to companies and include:
increased deduction for R&D revenue spending and a payable R&D tax credit for companies not in profit.
The government is committed to improving access to R&D highlights the need for more SME companies to understand what relief is available and how the process of claiming tax relief works. Recent changes to R&D scheme rates have increased the relief available so a clear understanding is needed to ensure that companies are aware of how the tax rules work.
What are the tax reliefs available for SME companies?
A company can claim enhanced deductions against its taxable profits for expenditure which is qualifying R&D expenditure. The amount of the enhancement has increased over the years. The rate was 125% for expenditure incurred before 31 March 2015 and has increased to 130% from 1 April 2015. This amount is in addition to the actual expenditure (ie a 230% total deduction from 1 April 2015). R&D enhanced relief represents an additional corporation tax reduction of 26% of the expenditure incurred.
If the R&D claim creates a tax loss, then the company may be able to surrender the loss for a cash repayment. This is 14.5% for expenditure incurred on or after April 2014. A surrendered loss could therefore give a repayment of up to 33.35% of the expenditure.
Where the company incurs qualifying R&D expenditure before it starts to trade, it can elect to treat 230% of that expenditure as a trading loss for that pre-trading period. The pre-trading loss created by the R&D relief can then be surrendered, as above, which could provide much needed cash flow for new companies.
Research & Development Expenditure Credit (RDEC)
Qualifying R&D capital expenditure incurred by a company would be eligible for 100% research and development allowance.
How Innovation Relief Specialists can help
Obtaining tax relief for companies incurring R&D expenditure can only be achieved if the relevant conditions are met. It is therefore vital that professional advice is sought at an early stage. We have the knowledge and expertise to assist you in building your R&D claim.
Contact us today on 03333 987 3929 to get your claim started.