R&D relief

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Innovation incentives and R&D Tax Credits

The UK is recognised as a world-leading force in innovation, scientific research, and technological development.

In a post Brexit (and now post COVID-19) environment the UK Government recognises that science and technology will play a vital role in the UK remaining a competitive force. In 2020, they set out an ambitious Research and Development (R&D) road map detailing numerous ways in which they intend to incentive and support innovation in the UK.

One key element of this support is the continuation and enhancement of significant tax incentives intended to provide financial assistance to companies seeking to invest in innovation. These tax incentives are provided through the means of tax credits which can provide a vital boost to cash flow and help claimant companies further fund their research and development activities.

What is often overlooked is that R&D tax credits may be claimed by a broad spectrum of companies and not those immediately in science or technology sectors. For example, we have assisted clients from sectors including manufacturing, engineering, construction, IT, agriculture, breweries, retail and even scrap metal merchants – as well as clients operating in ‘white coat’ bio and ‘bleeding edge’ computer science sectors.

There are two key incentive schemes available. Both have been enhanced in recent years with further positive changes on the horizon. These are:

The SME scheme

Broadly this is available to small and medium-sized companies. Where claimants undertake qualifying activities, they may claim an enhanced deduction of 230% of their qualifying expenditure.

The enhanced deduction can reduce taxable profits or even create and enhance tax losses. For profitable companies, this can mean that the SME tax credits provide an effective cash benefit of 24.7p for every £1 of qualifying expenditure (130% x 19%)

For loss-making companies, the tax R&D loss may be surrendered in exchange for a repayable tax credit worth 14.5%. This can be worth up to 33.35p for every £1 of qualifying expenditure (230% x 14.5%).

R&D Expenditure Credits (RDEC)

A company may claim RDEC where it does not qualify as an SME. In certain circumstances, SMEs may be required to claim under RDEC where a project does not meet certain SME scheme criteria.

Under RDEC a company can claim a tax credit of 13% of qualifying expenditure incurred on or after 1 April 2020 (previously 12%). This is accounted for as an above the line credit and therefore increases a company’s profit before tax.

The credit can be offset against the corporation tax liability of the company, offset against other liabilities, or potentially repaid to the claimant.

How we can help

Our specialist team offer an end-to-end R&D service. This will enable you to access the R&D relief that you are entitled to as quickly and easily as possible.

We will work with you to identify qualifying projects and expenditure on which a robust R&D tax credit claim may be made.

Our bespoke approach is designed to provide HMRC with the relevant information they require so they can promptly approve and expedite your tax credit claim.

As a leading firm of accountants, all of our R&D Tax credit service work is undertaken in accordance with the Professional Conduct in Relation to Taxation (PCRT).

Our areas where our business tax advisory team can provide support and assistance

We are also happy to talk to you about and advise on the following key areas, amongst others, where tax represents an important element of the commercial decision-making process: