Advice In Brief: What Are Research And Development Tax Credits

Research and Development Tax Credits are a tax incentive designed to encourage UK companies to invest in their research and development (R&D) for the overall benefit of British Industries. The tax credits can allow an eligible company to reduce their tax bill or claim cash credits as a proportion of their R&D expenditure over the qualifying period.

Depending on the size of a company, in terms of employee numbers and revenues, there are two schemes available: The Small to Medium Enterprise (SME) and RDEC schemes. Each scheme is designed to reward research and development activity for companies of all sizes – even if the business is loss-making.

Through the SME scheme, a business can claim up to 33% of their total R&D costs, which is seen as a Corporation Tax reduction for a profit-making business, or if the business is loss-making then this is in payable cash credit and is not taxable. A larger company is able to apply for 13% back through the RDEC scheme.

A company can make a claim up to two years after the end of the accounting period that the R&D expenditure relates to.