At the turn of the century, the government launched the research and development (R&D) scheme to encourage scientific and technologic innovation among the UK’s business community.
The R&D scheme is a corporation tax relief that can reduce your business’ tax bill or, in certain circumstances, provide you with a payable tax credit.
The SME scheme
From 1 April 2015, the tax relief your small business can get increased to 230% of your qualifying R&D costs.
This allows your business to deduct 130% of your qualifying costs from your annual profits on top of the standard 100% deduction.
Loss-making companies can in certain circumstances surrender their losses in return for a payable tax credit, worth up to 14.5% of the loss.
The RDEC scheme
The RDEC was fully introduced on 1 April 2016 and replaced the large company scheme – an R&D tax relief scheme predominantly geared towards large businesses.
While this is aimed at large businesses, owners of small and medium-sized enterprises (SMEs) are not totally excluded from claiming the RDEC.
SMEs performing R&D work as a subcontractor for a large business may claim relief through the RDEC, as can businesses that have received a grant or subsidy to fund a particular R&D initiative.
On 1 January 2018, the rate of tax relief available to businesses carrying out qualifying R&D and claim the RDEC increased from 11% to 12%.
What scheme is my business eligible for?
HMRC determines which R&D scheme your business may be eligible for on 2 criteria.
To qualify for the SME scheme, your business must have fewer than 500 employees and either have annual turnover of under €100 million or a balance sheet total of less than €86 million.
All companies above these thresholds will be eligible for the RDEC if your company’s project qualifies.
Which projects qualify?
So long as your project seeks to achieve an advance in overall knowledge or capability in a field of science or technology, your small business may be eligible to claim for R&D tax relief.
Our team of experienced accountants and business advisers will work with you to minimise your corporation tax bill and ensure you’re making the best use of the tax reliefs available to you.
Contact us or call 0161 336 2222 for more information about our corporate tax planning services.