R&D relief is available to companies who have expenditure on R&D activities in an accounting period. It is not available to either sole traders or partnerships. The relief reduces the company’s corporation taxable profits for the relevant period. The amount of relief available to a company depends on the company’s size. There are two schemes of relief available depending on whether a company is small or medium sized (SME) or a large company.
A SME is a company that has less than 500 employees and either turnover of less than €100 million or a balance sheet not exceeding €86 million. If the company is part of a group, these limits must be applied to the whole group in order to determine if R&D relief could be claimed under the SME or Large Scheme.
The enhanced tax relief on allowable R&D costs (see 12.3 below) for an SME is available at an enhanced rate of 130%. Therefore, for every £100 spent on qualifying R&D projects the company’s taxable income will be reduced by a further £130. Furthermore, if your company makes a loss you can opt to receive the R&D relief by way of a cash payment from HMRC. The amount of the payment will be limited to 14.5% of your surrenderable loss.
For companies considered large they can claim enhanced relief under the RDEC. This will give companies a 11% tax credit on qualifying research and development expenditure which is deducted from the corporation tax payable. This credit is in itself taxable. Depending on whether your company is profit or loss making the credit may be used to discharge tax liability or result in a cash payment.