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Overview of Research and Development (R&D) Relief for Corporation Tax

Date: 11th August 2014

The Research and Development (R&D) Relief is a Corporation Tax (CT) relief that can reduce the company’s overall tax bills. If a company is a small or medium size business, you can choose to receive a tax credit.

How it began?

The R&D tax relief was announced in the year 200 for small and medium business enterprises and a separate scheme for corporations and large business which was introduced in 2002. The scheme was a result of the UK government’s intention to increase R&D based out of UK by helping in reduce the cost of R&D and fuelling investment in R&D.

There are two main types of R&D incentive structure:

  1. Volume-based (credit based on absolute volume of R&D expenditure)
  2. Incremental-based (credit driven by the increase in R&D spending over a base figure)

The UK scheme is volume based as it provides an incremental approach.

Who are eligible?

1. SME (Small or Medium size business) scheme:

  • 225% of qualifying expenditure, a 125% uplift
  • Before 31st March 2011 the rate is 175%, & 1st April 2011-31st March 2012 it is 200%

(Note: Cash credit available in loss making situations.)

Exceptions:

  • SME subcontracted R&D cannot be claimed except when an SME executes work for a large company in which case it can claim at the large company rate
  • An SME with a grant relating to R&D can only claim the subsidised expenditure at the large company rate

2. Large Company Scheme:

  • There has to be an employee count of over 500
  • Turnover exceeding €100 million
  • Balance sheet exceeding €86 million
  • 130% of qualifying expenditure, a 30% uplift

(Note: Also there is “NO” cash credit available in loss making situation.)

To know more about R&D tax relief visit www.randdtax.co.uk

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