Introduction to R&D Tax Credit Schemes in the UK
Here at RDT Active, we like to keep you in the loop of what’s happening and try and make everything easy for you to understand. So here is an introductory guide that will provide everything you need to know about R&D tax credit schemes in the UK.
As you may or may not already be aware, R&D tax credits are available to limited companies in the UK. This means that it is not available to all businesses in the UK, some of which include:
- Sole Proprietors
- Unlimited Companies
The current tax rate for companies is 19%, and tax relief schemes are applied to the final tax burden. R&D tax credit schemes have evolved and changed continuously over the last 20 years since they were first introduced. Because it is in the constant state of change, we always advise you to seek up-to-date information from a specialist. If you have any questions, you can always contact our team.
Before its introduction in 2000, the predecessor to the UK’s R&D tax credit schemes was the Scientific Research Allowance (‘SRA’). The SRA was a form of a tax allowance for capital expenditure (e.g., investment in scientific equipment), which allowed full depreciation of the expense in the first year. Since its introduction in 2000, the R&D tax credit framework has arrived at two separate schemes:
- The Research and Development Expenditure Credit scheme (the RDEC scheme, formerly known as the ‘large company scheme’). RDEC is available to both large companies and SMEs who have been subcontracted to do R&D work by a large company (more on this below). Note also that the RDEC scheme permits companies that are members of corporate groups to surrender their RDEC against the tax liability of another member of the group.
- The Small and Medium-Sized Enterprise (SME) Scheme (the SME scheme). To be eligible for this scheme, the company must have less than 500 staff and a turnover of under 100 million euros, or a balance sheet total under 86 million euros.
Both schemes operate similarly: They reduce the taxable company income by an amount which is proportional to R&D expenditure in the company. The overall effect, for tax purposes, is either a reduction in the company’s income or, where it is loss-making, an increase in the loss. Where the company is loss-making, the R&D tax credit can either be carried forward as a loss in the next year or taken immediately as a cash payment.
One big difference between the two programmes is that the SME scheme is more generous than the RDEC scheme. Note, however, that the RDEC scheme works better when a company also has other separate State R&D grants, so, in some cases, this scheme can be more lucrative.
Discuss your R&D tax credit with an expert
We can help determine if your activities are eligible for R&D tax relief and assist you in gaining the best results. We work on a no win, no fee basis, so why not get in touch with our team for free today? Visit our contact us page or call us now on 0115 855 0960. You can also email us at email@example.com.