The reliefs available are based upon the amount which a business spends on qualifying R&D activities. The amount of saving will therefore depend upon the level of your qualifying spend.
The amount of relief and how it is calculated will also depend upon whether your company is classed as an SME or a large company.
SME relief is much more beneficial than relief for large companies. The definition of SME for this purpose is also more generous than the definition used in many other scenarios.
You will qualify as an SME if in terms of size you have fewer than 500 employees and either an annual turnover below €100 million or a balance sheet total below €86 million.
If a standalone company it is straightforward to consider the above limits, however complications can arise where the company is part of a group. It can then mean that other company information must be included when considering whether the company is an SME. We can advise on this and also other factors which may impact upon eligibility such as if your company is in receipt of an R&D subsidy or grant.
For SMEs, the tax relief is 230% of eligible R&D spend. For every £100 of qualifying costs, your company can deduct an additional £130 on top of the £100 spent when calculating profits for CT purposes.
Larger companies – ‘Research and Development Expenditure Credit’ (“RDEC”) scheme
RDEC replaced the previous large company scheme with effect from April 2016.
The method of giving the relief under RDEC is fundamentally different to SME relief and is sometimes referred to as Above The Line Credit. The mechanics of RDEC will not be discussed today but are covered separately on our website.
From 1 April 2015 the tax relief was given at 11% on the amount of qualifying R&D expenditure. For expenditure incurred on or after 1 January 2018 the RDEC rate has increased to 12%