What is Research and Development Tax Relief?
Research and Development tax relief supports companies that work on innovative projects in science and technology. Generally, one cannot claim relief if work is carried out in advances in arts, humanities, and social science, including economics.
SMEs and Tax Credit
The size of a company determines the type of R&D tax relief that can be claimed, they are generally two types of R&D tax relief that can be claimed. For Small and Medium-sized enterprises SME R&D tax relief requires certain qualifying conditions. The enterprise or entity must have less than 500 staff with a turnover of under 100 million euros or a balance sheet total of under 86 million euros.
Small and medium-sized companies/enterprises can deduct a further 86% of their qualifying cost from their yearly profit, also a normal 100% deduction to make a total of 186% of the combined deduction. SMEs can further claim a payable tax credit if the company has claimed relief and made a loss, the payable credit is worth up to 10% of the surrenderable loss.
If an SME has an external investor, one has to include figures of linked and partner enterprises. The staff and turnover and balance sheet of linked or partner enterprises should be included in the total. The rules concerning linked enterprise are that a company is linked to another if:
- It holds over 50% of the voting rights in other enterprises,
- Another enterprise holds over 50% of the voting rights in the company.
- It has other rights which allow it to control another enterprise.
- Another company has other rights which allow it to control your company.
- Your company and another enterprise are both controlled by another party.
The company has partner enterprise if,
- Another company holds over 25% of the voting rights or capital,
- Your company holds 25% of another company’s voting rights or capital.
You will have to include a proportion of the staff, turnover and balance sheets of the partner companies. This should be based on the percentage of voting rights and capital that connects the 2 companies.
Claiming Tax Credit by SMEs’
Claims or amendments are done using the company tax return and include:
- Complete the single iXBRL computations file
- Put an ‘X’ in box 656 to tell us that you’ve submitted the claim notification form
- Put an ‘X’ in box 657 to notify that you have submitted the additional information form
- Complete the supplementary form CT600L if you are claiming a payable tax credit or R&D expenditure credit
- In case your tax relief claim covers more than 12 months, one should submit a separate claim for each accounting period. Tax relief for up to 2 years can be claimed after the end of the accounting period.
Large Companies and Tax Credit
Large companies can claim expenditure credit for working on R&D projects.
Large companies can claim expenditure credit for working on R&D projects. These can also be claimed by SMEs who have been subcontracted to do R&D projects by large companies.
Regardless of your company making a profit or loss, some or all of the expenditure credit can be used to settle the company’s corporation tax liability. In these situations, expenditure credit can be used to settle other tax liabilities and lead to a payment of credit to your company.
Claiming Tax Credit by Large Companies
Large companies can claim expenditure by filing Company Tax Return, and following the steps below: –
- Show expenses credit as taxable income in one’s profit and loss account or add it to the company’s profit in the single iXBRL computation file.
- Put an ‘X’ in box 656 to inform HMRC that the claim has been requested
- Put an ‘X’ in box 657 to inform HMRC that additional information has been submitted
- Include bank details so HMRC can make deposits of requested claims.
- Additionally, complete the supplementary form CT600L