Who can claim?
All companies, large and small, can claim if they undertake qualifying work - even if they do not pay corporation tax because they are unprofitable.
There are two schemes under which a claim can be made.
1. Small and medium-sized businesses (SMEs)
The R&D tax credits available to smaller companies have substantially increased in recent years.
A super deduction of 230% of qualifying expenditure is applied for profitable companies (leading to a tax saving of around 25% of the expenditure, in addition to the ‘normal’ tax relief), while loss-making companies can claim a cash payment from HMRC of 33.35% of qualifying expenditure.
A company can generally claim under this scheme where they have:
- less than 500 staff; and either
- less than €100 million turnover; or
- €86 million gross assets.
If a company meets the above criteria but their R&D is either funded (for example, by grants) or subcontracted to them by third parties, they will most likely need to make a claim under the R&D Expenditure Credits scheme (see below).
2. Research and Development Expenditure Credits (RDEC) scheme
RDEC allows larger companies, and SMEs in certain circumstances, to claim a cash credit against the cost of their qualifying R&D activity.
The credit is recognised in pre-tax profits in the company’s financial statements. From 1 April 2020, the credit rate increased to 13% (from 12%). As with the small scheme, loss-makers are able to claim cash back from HMRC, subject to certain conditions being met.
The RDEC credit is itself subject to corporation tax, so the net ‘post-tax’ cash benefit that it generates is around 10% of qualifying R&D expenditure.