Research and development relief (R&D) and tax credits

R&D tax credits remain a valuable Government subsidy for UK companies. It can deliver tax relief on up to £186 for every £100 spent on research and development.

The relief is administered by HMRC and is designed to encourage innovation by helping companies recover part of the development costs for new products, processes, devices, materials and services. The amount you can claim depends on the size of your organisation. Typically, claims are worth tens of thousands of pounds to UK companies.

How much R&D relief can you claim?

The size of your R&D tax credit claim depends on the size of your company.

Small and medium sized enterprises (SMEs)

A company is classed as an SME if it has less than 500 staff and either a turnover not exceeding €100 million or gross assets of less than €86 million.

An SME can claim tax relief on up to £186 for every £100 spent on research and development.
If a small business is in profit, its enhanced R&D tax deduction can be used to reduce its taxable profits. If it has made a loss, it can choose to carry the enhanced loss forward to offset future profits or to receive a R&D tax credit payout (in most cases, 10% of the enhanced costs, with higher rates available to ‘R&D intensive’ businesses) to boost its cash flow.

An SME claim could fall under the large company threshold if it’s impacted by other significant factors such as:

• Grants or subsidies related to the R&D project;
• R&D subcontracted by a large company;
• If your SME is a ‘linked’ or a ‘partnered’ enterprise, for example where at least 25% of company shares and voting rights are held by another entity.

Large companies

A company is classed as large if it exceeds any of the SME thresholds.

Large companies are able to claim Research and Development Expenditure Credits (RDEC). The credit is calculated at 20% of the company’s qualifying R&D expenditure. However, the credit is taxable.

Depending on whether the company is profit or loss making, the credit may be set against a corporation tax liability or made as a cash payment.

Upcoming Changes

The existing SME and RDEC schemes are due to merge. The new scheme (based on the existing RDEC scheme) will apply to expenditure incurred in accounting periods beginning on or after 1 April 2024. In simple terms, claimants will receive a taxable 20% credit for all qualifying expenditure, offering profitable companies a cash benefit of £1,500 for every £10,000 of qualifying expenditure and loss-makers a notional tax credit of 19% as opposed to 25%.

WMT can advise you on these complex rules, review your eligibility, establish which tax treatment applies to you and ensure you get maximum R&D relief or tax credits.

How can WMT help you make the most out of R&D relief?

Calculate maximum tax credit available;

Prepare and include your R&D tax relief claim in your annual corporation tax return;

Safeguard the success of your claim by producing a detailed report for HMRC to explain how the claim was calculated and why the relief is due.
If you choose to write your own report, we can check it complies with current legislation.

Make the process quick and painless, as the claims we prepare and submit are processed by HMRC and payments issued within a matter of weeks.

If you are engaged in innovation – be it technology, engineering or manufacturing – you can gain maximum benefit from combining our R&D tax relief advice with advice on patent box relief and the preparation of your corporate tax return.

Get in touch with our tax team to find out more about how we can help you.