Research and Development Tax Credits

For every £100 of qualifying costs, your company can reduce its corporation tax by an additional £125 on top of the £100 spent.

Research and development (R&D) tax relief is intended to drive UK productivity by encouraging innovation.

R&D tax credits and relief are available to businesses for expenditure of a revenue nature (that is, expensed through the profit and loss account) on R&D activities related to a company’s trade.

Subject to the detailed rules, this can include expenditure on:

• Staff costs (i.e. salaries etc.)
• Consumable items (i.e. materials or equipment consumed during the R&D process),
• Software used in the R&D, and
• Payments to externally provided workers/sub-contractors carrying out R&D for the business.

Rate of Tax Relief or Credit

• The tax relief on allowable R&D costs incurred after 1 April 2012 is 225%.
• For every £100 of qualifying costs, your company can reduce its corporation tax by an additional £125 on top of the £100 spent.
• If there is a taxable loss for the period, this can be increased by 125% of the qualifying R&D costs.

This loss can be carried forward in the normal way and offset against future taxable profits or can be converted to tax credits payable to the company by HMRC.

Illustration 1

R&D Relief for expenditure of £20,000 where the company has made a profit of £30,000:

Illustration 2

If your company makes a loss, the company can choose to receive the tax relief by way of tax credits – a cash sum paid to the company by HMRC.Converting R&D Relief on expenditure of £20,000 to a tax credit payment:

FOR MORE INFORMATION:

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.

Telephone: 0151 644 4848