Who is eligible for R&D Tax Credits/Relief?
Any company or organization that pays corporation tax & PAYE/NIC and invests in trying to improve a product, process or service by technological advancement could be eligible for Tax Relief/Credits.
There are two schemes for claiming Tax Relief/Credits depending on the size of the company or organization: The Small or Medium sized Enterprise (SME) scheme and the Large Company Scheme (LCS).
An SME is a company or organization with fewer than 500 employees and either of the following:
- an annual turnover not exceeding €100 million
- a balance sheet not exceeding €86 million
A company or organization may not be considered to be a SME if it's part of a larger enterprise that, taken as a whole, would fail these tests. When considering the limitations as above a company may need to include any company that has a shareholding of 25 per cent in your company and/or any company your company holds a 25 per cent share in. It is also worth noting that this definition of a SME for R&D Tax Relief purposes is not necessarily the same as that used by HMRC in relation to other areas of Corporation Tax or other tax areas such as PAYE, or by other government agencies.
If your company is not small or medium‐sized, then you can only claim under the Large Company Scheme (LCS).
How the SME Scheme Works
The SME scheme allows the deduction of qualifying R&D costs from the company’s taxable income. Not only can the company claim the full cost of qualifying expenditure, they can also claim an additional 75% (increasing to an additional 100% for expenditure from 1st April 2011)
For example if a company had £10,000 of qualifying expenditure they would be able to deduct £17,500 from their taxable income.
The concept of the scheme itself is very simple however making the claim is not. The complexities lay behind what is actually classed as Research & Development and then to identify what, within that, is qualifying expenditure.
Under the SME if your company has made a loss or subject to certain criteria you may be able to choose to receive a Tax Credit.