Only 10% of eligible businesses in the UK claim research and development (R&D) tax relief, meaning the vast majority are missing out on this incentive for innovation. Here, Dua & Co explore how R&D tax relief works, why it was introduced and how your business could benefit from it.
In 2000, the UK introduced new tax legislation to foster innovation by offering tax benefits to businesses engaged in certain qualifying R&D expenditure. Under the system, businesses engaged in projects intended to ‘achieve an advance in overall knowledge or capability in a field of science or technology’ can claim extra deductions from their Corporation Tax (CT), or a payable tax credit in certain circumstances.
The exact nature of the R&D relief for which your business could be eligible can vary according to the nature of the business, the R&D project being claimed for and the size of the company.
The most relevant for small and medium sized businesses is the SME Scheme, under which companies with fewer than 500 employees and either an annual turnover under €100 million or a balance sheet of under €86 million, can claim back up to 230% of their qualifying R&D expenditure. This scheme also allows loss-making companies to surrender their losses and receive a tax credit in return.
All businesses which do not fulfil these criteria must use the Research and Development Expenditure Credit (RDEC) scheme. Introduced in 2013, RDEC offers less generous incentives to larger businesses, but can also be used by companies with no CT liability to receive cash payments or tax deductions. In certain circumstances SMEs can claim under this scheme, including when carrying out subsidised or subcontracted research on behalf of another organisation.
However, while R&D tax relief can be hugely beneficial, it also carries penalties for companies using the incorrect scheme. A full overview of the relief schemes available, and a complete list of the eligibility criteria, can be found on the HMRC website.
For businesses carrying out research and development in eligible fields, these tax relief opportunities can offer lucrative benefits and rewards – as well as helping to further cultivate UK industry’s most ground-breaking areas of innovation.
As experienced accountants in Watford and London, Dua & Co offer expert guidance and business advice on all your tax affairs, including your R&D relief eligibility. Our team of highly qualified accountants are on hand to make sure you know everything you need to remain compliant while receiving the maximum benefits that you are entitled to.
Please get in touch to find out how we can help your business, or to arrange a free initial meeting to discuss our tax planning and tax strategy services.