R&D scheme a generous tax relief

    The R&D scheme is a tremendously generous tax relief which can secure substantial tax repayments or even payable tax credits for loss-making companies which have paid no corporation tax.

    The qualifying costs which can be included in an R&D tax relief claim are:

    • Staff costs (including gross salary, employer's NI, employer's pension contributions and bonuses on an accruals basis)
    • R&D materials and consumables
    • The costs incurred for any subcontracted R&D - capped at 65%
    • Light, heat and power costs
    • Any externally provided workers engaged on R&D projects

    Once these costs have been ascertained, the company will receive an additional 130% corporation tax (CT) relief on expenditure incurred after 1 April 2015.

    Therefore, if a company has spent £100,000 on R&D in an accounting period, an additional £130,000 CT deduction is allowable (on top of the £100,000 already received) giving a total relief figure of £230,000. This will reduce taxable profits or increase tax losses.

    Under the SME scheme, this equates to a saving of 26% on the 20% tax rate and 24.7% under the 19% tax rate from April 2017.

    The Research and Development Expenditure Credit (RDEC) scheme used for large companies is less generous as subcontractor costs are not allowable. The saving is 8.8% on the 20% tax rate rising to 8.91% under the 19% tax rate from April 2017.

    For further information, please contact Zoe Barraclough, R&D Tax Consultant at Abbey Tax on 0345 223 2727.