R&D tax credits - why small can be beautiful


Date: 30 April 2019

A small business owner is happy to see her claim for R&D tax credits has been approvedIn some situations, there are big advantages to being the little guy. The government's financial help scheme for science and technology research is one of them.

The research and development (R&D) tax credit scheme, which gives companies some of their tax back to help them cover the costs of R&D, is more generous if you're a small business than if you're a large one.

How much you can claim is different for every firm, but on average, small businesses are claiming £53,876 each year.

Who is eligible for the scheme?

The R&D tax credit scheme is open to companies working in science, technology, engineering and medical research who are trying to solve problems and make advances in their field. This can encompass a wide range of sectors, including IT, agriculture, aviation and shipbuilding.

Your work doesn't need to be successful - part of the reason for the scheme's existence is to help companies mitigate the risks inherent in ground-breaking work. It reduces the amount of corporation tax you pay, so you must be a limited company registered in the UK and subject to corporation tax.

What can I claim for?

The main costs you can claim R&D relief on are:

  • staff costs (for staff directly working on R&D): salaries, expenses, pension and National Insurance contributions;
  • materials used in your research;
  • utilities;
  • software;
  • payments to volunteers in clinical trials;
  • the cost of creating prototypes.

You can't claim for the costs of producing goods, land, capital expenditure (though there is a separate R&D allowance to help you with the cost of plant, machinery and buildings), protecting intellectual property, or rates and rent.

How much relief can I claim?

Profit-making small companies can usually claim slightly less than 25% of the above costs back, while loss-making small companies can claim around 33%. In contrast, large companies can expect just under 10% of their costs back.

This doesn't actually mean that loss-making companies are getting a better deal, as profit-making companies will have already offset their R&D spending against their profits when calculating their corporation tax. R&D tax credits are in addition to this reduction.

This R&D calculator from R&D tax specialists R&D Tax Solutions, who specialise in helping companies make successful claims, can give you an idea of how much you might be able to get back.

What counts as a small company?

To qualify as a small company for the purposes of the scheme, you must have fewer than 500 employees, and either a turnover of less than €100 million (£86 million) or a balance sheet of less than €86 million (£74.1 million). Otherwise, HMRC considers you a large company.

You will also usually have to claim under the less-generous large company scheme if you have received a grant or subsidy, or have been subcontracted to do the R&D by a large company.

Any companies linked to yours (ie those that own more than 25% of your company, or vice versa), will also affect how your size is calculated.

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