Posted by James Pearson on 06 Jun 2019
R&D Relief for SMEs
The UK corporation tax relief for expenditure on Research and Development (R&D) is extremely generous, particularly for small and medium-sized enterprises (SMEs).
In the 2016-17 year alone, nearly 40,000 R&D relief claims were made (mainly under the SME scheme), resulting in nearly £4 billion of relief for UK companies.
SMEs receive an additional tax relief of 130% – that is, for every £100 of qualifying R&D expenditure, the taxable profits of the company will be reduced by £230. Any R&D loss under the SME scheme can also be traded in at 14.5% for a cash payment from HMRC, helping to fund the R&D through the development phase.
The large company scheme is less generous, but still results in an additional tax saving of around 10%. Further details of the available R&D schemes are set out here.
The 2018 budget reaffirmed the UK’s commitment to supporting R&D, which indicates that there is no intention to withdraw or reduce the current relief. However, it was also noted that HMRC are aware of abuse of the R&D relief system, often by non-UK businesses setting up a UK company to claim UK R&D tax relief, without there being any UK activity or presence for that business.
In order to prevent such abuse, from April 2020 the amount of repayable R&D tax credit that an SME can claim each year will be capped at three times the company’s total PAYE and National Insurance contributions liability. Any companies without UK-payrolled staff will therefore be unable to claim the repayment credit, so will only receive relief once UK profits arise in the business.
It is clear that R&D relief will remain as a valuable tax relief for the foreseeable future, and that HMRC will continue to make sure that abuse of the relief is minimised.
Tax Innovations has provided assistance for many companies making R&D claims, including reviewing R&D claim documents, determining the scope of qualifying R&D projects, identifying qualifying expenditure, submitting R&D claims to HMRC and dealing with any queries HMRC may have.
We charge based on our time costs only (not a percentage basis, as many specialist firms do), so can provide a premium R&D service at a sensible price.
If you would like any advice regarding R&D relief for SMEs or would simply like to discuss other ways in which we could help you or your business, please contact us on 01962 856 990 or firstname.lastname@example.org