Currently R&D reliefs are available under two schemes and to a certain degree there is some overlap:
SMALL AND MEDIUM SIZED ENTERPRISES (SME) R&D RELIEF
You can claim SME R&D relief if you are a SME with:
less than 500 staff
a turnover of under 100 million euros or a balance sheet total under 86 million euros
You may need to include linked companies and partnerships when you work out if you are a SME.
SME R&D relief allows companies to:
deduct an extra 130% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230% deduction
claim a tax credit if the company is loss making, worth up to 14.5% of the surrenderable loss
RESEARCH AND DEVELOPMENT EXPENDITURE CREDIT
This replaces the relief previously available under the large company scheme. Large companies can claim a Research and Development Expenditure Credit (RDEC) for working on R&D projects. It can also be claimed by SMEs and large companies who have been subcontracted to do R&D work by a large company.
The RDEC is a tax credit, it was 11% of your qualifying R&D expenditure up to 31 December 2017. It was increased to:
12% from 1 January 2018 to 31 March 2020
13% from 1 April 2020
Research and development expenditure credit (RDEC): a 13% above the line credit and is primarily used by larger companies.
The government aims to increase investment in R&D to 2.4% of UK GDP by 2027. This wide-ranging consultation seeks views from stakeholders on the current R&D tax relief schemes. The government consultation will review and consult on a number of issues over an extended 3-month period.
- Should the two current schemes be combined?
- Is the difference in rates between RDEC and the SME scheme still appropriate or should they be changed with possibly a higher rate for SME’s?
- It will examine how R&D is defined and if the current scope of what qualifies for R&D relief is still appropriate.
- The consultation may consider the location of R&D claims. Currently concentrated in London and the South East. Perhaps offering more incentives for R&D development outside the SE and the capital.
- The government may consider restricting the amount of relief where the R&D activity takes place outside the UK.
- Incentivising green R&D projects.
- Whether the schemes should be amended to remain internationally competitive and keep the UK at the cutting edge of innovation
You can read the full consultation document by clicking on the below link.