R&D Tax Benefits

Companies that invest in research and development (R&D) activity that meets certain statutory definitions can receive tax relief on the expenditure. SMEs can, in addition, receive tax credits. Companies, partnerships and sole traders can also receive tax allowances on capital equipment that is purchased for R&D.

An organisation claiming R&D tax allowances, tax relief and/or tax credits must comply with HM Revenue & Customs’ rules. A guide to the rules is available from the HM Revenue & Customs' website

Please speak to your accountant or financial adviser about claiming R&D tax benefits or contact 3CR

Companies, partnerships and sole traders can claim 100% R&D Capital Allowances on capital expenditure for R&D except land and dwellings. R&D Capital Allowances are claimed in the same way as other capital allowances although it is a good idea to provide an explanation of why the expenditure qualifies.

The Large Company Scheme is available to all companies.
To qualify, expenditure must meet the definition of R&D expenditure:
- If the company has a project seeking to achieve an overall advance in science or technology, the direct expenditure that directly contributes to achieving that advance, plus certain indirect activities supporting the project, can qualify as R&D expenditure.
- The project must seek to advance overall science or technology, not just work to bring the company up to speed.
- In addition, the company must own any intellectual property developed (even where ownership is not exclusive) and intend to exploit the advance.
Companies with expenditure that meets these requirements can reduce their taxable profits (or increase taxable losses) by an additional 25% of the qualifying expenditure.

Companies that meet the EU definition of a small or medium sized enterprise(SME) qualify for the Small Company Scheme. More information

If the SME is contracted to carry out the R&D activity by another entity, or its costs are met by another entity or it receives Notified State Aid for the project, it can still claim R&D Tax Reliefs under the Large Company Scheme.

Otherwise, it can reduce its taxable profits (or increase taxable losses) by an additional 50% of the qualifying expenditure (as opposed to 25% under the Large Company Scheme). Alternatively, if the company made a loss in the accounting period, it can receive R&D Tax Credits up to the lesser of 150% of qualifying R&D expenditure and 16% of surrenderable losses incurred in the period. The amount of R&D Tax Credits it can receive is capped at the total of PAYE and NIC payments made in the relevant financial period.

If R&D Tax Credits are received, losses are surrendered in return so there will be fewer carried forward losses to be offset against future taxable profits.