The Two Types of R&D Tax Relief Available
In our previous article, we highlighted the ‘claim gap’, which showed that 80% of eligible companies are not claiming R&D tax credits.
We suggest this is largely the result of misperceptions surrounding what does and does not qualify for the relief. In an upcoming article we shall be exploring the types of activity that could qualify for the relief – please make sure you follow us using one of the links below to ensure you don’t miss it.
This article explores the two types of R&D tax credit relief currently available and how they could benefit your company.
Small and Medium Enterprise (SME) Relief
SME R&D tax relief is the most generous relief available. At the time of writing, a qualifying company could receive a cash benefit of up to 33.3p for every £1 of qualifying costs identified. The huge potential of this relief is highlighted by the fact that the average value of an SME tax credit claim per the latest set of Government statistics stood at circa. £62,000.
Large Company Relief – Research and Development Expenditure Credit (RDEC)
RDEC R&D tax relief is less generous than the SME relief above but still provides a valuable cash boost. A qualifying company could receive up to 9.7p for every £1 of qualifying expenditure. Per the latest Government statistics the average value of a large company claim stood at circa. £343,000.
How Do I Know Which Relief to Use?
The relief available to your Company will depend upon its size, as well as any connected companies within your group structure. An SME company is one which:
- Has fewer than 500 full-time equivalent employees; and
- Has either:
- Turnover of less than €100m; OR
- Gross assets of less than €86m.
If your company is a member of a group you may need to aggregate the other companies numbers with your own. This would need to be investigated prior to starting your claim.
In addition, there are several other factors that can affect which relief is available to you. Under certain circumstances, an SME company may still be forced to make a claim under the large company provisions despite meeting the above thresholds. This can arise when your company has received grant funding or if you undertake R&D activities on behalf of a third party. The rules in this area are quite long and complex so I would strongly suggest discussing this with your Chartered R&D tax specialist before starting your claim.
Either way, whether your Company would be classified as an SME or a large company, there are huge financial rewards that could be obtained from making a claim and more activities qualify than you may first think.