Research and Development (R&D) reliefs support companies that work on innovative projects in science and technology. It can be claimed by a range of companies that seek to research or develop an advance in their field. It can even be claimed on unsuccessful projects.You may be able to claim Corporation Tax relief if your project meets HMRC's definition of R&D.
Small or medium-sized enterprise (SME) R&D tax relief allows companies to:
deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
To claim the relief you need to be a SME and show how your project meets our definition of R&D.
Companies who are making their first R&D claim can qualify for Advance Assurance. If Advance Assurance is granted, any R&D claims in the first 3 accounting periods will be accepted if they’re in line with what was discussed and agreed.
Companies that can claim relief
You can claim R&D tax relief if you’re a SME with:
- less than 500 staff
- a turnover of under €100m or a balance sheet total under €86m
- If your company has external investors, this can affect your SME status. You may need to include the figures of connected companies and partner companies when you work out if you’re a SME.
You cannot claim SME R&D relief if the project is already getting notifiable state aid or you’ve been subcontracted by another company. However, you may be able to claim the R&D Expenditure Credit (RDEC).
The staff, turnover and balance sheets of any connected companies should be included in your total. Your company is connected to another one if:
- it holds over 50% of the voting rights in another company
- another company holds over 50% of the voting rights in your company
- Partner companies
You have a partner company if:
- another company holds over 25% of your voting rights or capital
- you hold over 25% of another company’s voting rights or capital
- You need to include a proportion of the staff, turnover and balance sheets of partner companies. This should be based on the percentage of voting rights and capital that connects the
- 2 companies. For instance, if you own 30% of another company you should include 30% of its staff, turnover and balance sheets when calculating if you’re a SME.
Costs you can claim
You can claim certain costs on the project from the date you start working on it until you develop or discover the advance, or the project is stopped.
For staff working directly on the R&D project, you can claim a proportion of their:
- Class 1 National Insurance contributions
- pension fund contributions
- You can claim for administrative or support staff who work to directly support a project. For example, human resources used to recruit a specific person to work on the project. You
- cannot claim for clerical or maintenance work that would have been done anyway, like managing payroll.
You can claim 65% of the relevant payments made to an external agency if they provide staff for the project.