CIRD80150 - R&D tax relief: introduction: overview

This is the introduction to the R&D tax relief section of the manual.

The material in the introduction is designed to give an overview of the relief; for specific information you should refer to the relevant detailed part of the guidance.

Outline

R&D tax credits are a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized companies, provide a cash sum.

The term R&D does not simply take its accountancy or commercial meaning. While the accountancy meaning is where the definition begins for the purposes of the relief, it is qualified by the guidelines issued by the DTI CIRD81900.

Generally a project will be an R&D project if the project seeks, through the resolution of scientific or technological uncertainty, to achieve an advance in overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.

There are two schemes depending on whether the R&D is carried out by a company that is an SME or any company other than an SME (a large company). In certain circumstances an SME may be able to make a claim under the large company scheme where the conditions for the SME scheme are not fulfilled.

The R&D tax credit works by allowing companies an increased, or enhanced, deduction in respect of qualifying expenditure on R&D activities. The enhanced deduction either reduces the company’s profit, or increases its losses, for tax purposes if certain conditions are satisfied.

SMEs may be able to claim payable tax credits in cash from HMRC if they have losses in the accounting period but the enhanced relief must be surrendered in order to receive this payment.

Amount of relief

For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure.

Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.