Research and development (R&D) tax credits are a company tax relief which can either reduce a company’s tax bill or, for some small or medium sized companies, provide a cash sum.
The aim of the tax credits is to encourage greater R&D spending in order to promote investment in innovation. By early 2006 about 22,000 claims had been made, just over 19,000 of which were made under the SME scheme and just under 3,000 of which were made under the large scheme, amounting to almost £1.8 billion of support claimed through both schemes. To find out whether you can benefit, read the further information below.
The R&D tax credit works by allowing companies to deduct up to 150% of qualifying expenditure on R&D activities when calculating their profit for tax purposes. Companies which are SMEs can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from the HM Revenue & Customs.
Small or medium sized companies and their advisers can get information about the scheme specifically aimed at them in the guide ‘Research and development tax credits for small and medium sized companies’. This guide includes information on how the scheme works, what can be claimed, how to claim, some common errors to avoid and a number of tools to make claiming easier.
Full details of the R&D tax credit legislation are provided in HM Revenue & Customs’ Corporate Intangibles Research and Development (CIRD) manual. Below is a brief overview of the main features of the scheme. The overview below is intended as an introduction and should not be taken as an authoritative statement of the law; more detail is provided in the CIRD manual and the relevant legislation.
If you are involved in R&D you may also be able to claim R&D capital allowances (see the Capital Allowances manual for further details). Additionally you may wish to visit the Business Link Business Support Directory, or the DTI’s R&D web pages, where information is available on the range of Government support, including grants, for innovation and science.
