How is R&D tax relief calculated?

How is R&D Tax Relief Calculated?

The process of claiming research and development (R&D) tax relief can be complex. But with nearly £4 billion awarded each year, it is well worth the time and the effort to find out whether you qualify.

 

The amount of tax relief available under the scheme depends on the size of your business. Small to medium-sized enterprises (SMEs) apply through a different scheme to larger businesses, with different calculations for each.

 

SME or RDEC?

SMEs with fewer than 500 staff and a turnover of less than €100 million (or a balance sheet total under €86 million) qualify for SME R&D Relief.

 

This allows companies to deduct up to 130% of their qualifying costs from the year’s profits, in addition to the usual 100% reduction.

 

The tax credit is therefore worth 230% to SMEs engaged in eligible R&D projects. Loss-making companies can surrender their R&D losses for a payable tax credit of 14.5%.

 

Companies that are too large to meet the SME criteria can still make a claim for a Research and Development Expenditure Credit (RDEC), worth 12% of qualifying costs. This is offset against your tax liability, although it can be payable as cash in some circumstances.