Research & Development (R & D) tax relief has been available to all companies in respect of qualifying expenditure incurred during accounting periods beginning on or after 1 April 2002.
There are two schemes for relief depending on the size of the company; the Large Company Scheme, and the Small or Medium-sized Enterprise (SME) Scheme.
A company will be a SME for R&D purposes if the company,
- together with any company in respect of which it holds more than 25% of the capital or voting rights,
- has fewer than 500 employees & either an annual turnover of less than €100m (£88 million approximately)
- or a balance sheet total of not more than €86m (£75 million approximately).
Any company which does not meet the SME criteria will be a large company for R&D purposes.
The relief works by giving a tax deduction of 230% of eligible costs incurred by SMEs (225% prior to 1 April 2015). Large companies can make a claim under a different scheme making tax savings which equate to roughly 9% of eligible costs.
In order to qualify for the enhanced relief, the expenditure must qualify as R & D under GAAP (generally accepted accounting principles) and the activity must also be a qualifying activity within the guidelines issued by the Department of Trade & Industry.
The key issue here is that the guidelines dictate that the R & D activities, must be creative or innovative work in the fields of science or technology and undertaken with a view to the extension of knowledge. The research must be characterised by work that combines an appreciable element of innovation and breaks new ground, or aims to resolve scientific or technological uncertainties.
The types of expenditure which potentially qualify for the enhanced relief are restricted to qualifying staff costs (costs of staff directly engaged in R & D work), externally provided workers, software, consumable items, materials and equipment used in the R & D activity (excluding capital expenditure) and costs of energy consumed in the R&D process.
To find out more or seek advice on this subject please email firstname.lastname@example.org or call 0845 8800320