R&D tax relief for businesses explained

Research and development (R&D) tax relief is a government incentive designed to reward UK companies for investing in innovation in science and technology.  It can be an effective way to reduce a company’s Corporation Tax bill or receive a cash credit and can apply to a wide range of different industries working in a variety of business sectors.

Qualifying projects

Identifying a qualifying project is key. The government’s R&D criteria are broad – if the work involves taking a risk by attempting to ‘resolve scientific or technological uncertainties’ then your project may qualify.

The project must relate to your company’s existing trade, or a business that you intend to start up based on the results of R&D. Your project may research or develop a new process, product, or service, or improve on an existing one and importantly, the R&D doesn’t have to have been successful to qualify.

The full government criteria can be found here. In summary, to get R&D relief you need to explain how a project:

  • looked for an advance in the overall fields of science and technology
  • could not be easily worked out by a professional in the field
  • had to overcome uncertainty
  • tried to overcome this uncertainty

Tax savings

R&D tax credits can generate significant tax savings by reducing your business’ Corporation Tax liability. Or, if your business is making a loss, you can claim a cash repayment.

There are different types of R&D relief, depending on the size of your company and if the project has been subcontracted to you or not.

Small or medium sized enterprise (SME) tax relief allows companies to:

  • deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, making a total deduction of 230%
  • claim a tax credit if the company is making a loss, worth up to 14.5% of the surrenderable loss

Remember

This article is for information purposes only. Sensible financial planning can help to reduce the amount of tax you pay and safeguard your wealth for the future. This is where we can help – please get in touch.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from taxation, are subject to change. The Financial Conduct Authority does not regulate tax planning.