A company with qualifying R&D expenditure will benefit from a 25% R&D tax credit based on the qualifying R&D expenditure. As the tax credit is in addition to any allowable deduction for R&D expenditure in the accounts of the company, the effective rate of tax relief is 37.5%.
A company with excess tax credits can make a claim to have the credits carried back to reduce the corporation tax liability of the prior year. If any excess remains after that point, a company can claim to have the excess paid to them in 3 instalments over a period of 33 months from the end of the accounting period in which the expenditure was incurred.
The R&D tax credit can now be used as an employee incentive for research staff. The Finance Act 2012 allowed companies to have the option to use some portion of the R&D credit to reward key employees who have been involved in the development of R&D.