An Incentive to Innovate
HMRC actively incentivises all UK Companies – large or small – to commit financial resources to innovation and/or Research and Development spend (R+D). The way they do so is to offer a corporation tax credit, against your liability (if any), calculated in proportion to the amount of ‘qualifying’ R+D spend you have made in any given period. In the event that the Company is loss-making, and does not therefore have a corporation tax liability in the period, it is then eligible for a cash credit.
The size of the credit will depend on which of the two schemes your Company sits; if your Company is Large then you will claim under the ‘RDEC scheme’; if your Company is an SME you will claim under (the aptly named) ‘SME scheme’. Your Company is Large if you have;
· More than 500 employees
· OR Annual Turnover > €100 million
· AND a Balance Sheet value > €86 million
A business below these thresholds counts as an SME.
There are the two schemes (one for Large and one for SME Companies) to ensure that R+D tax credits are not only beneficial for large corporations with significant R+D budgets, but also for SMEs, which often have more limited resources for R+D. These SME-focused tax credits can help to level the playing field and ensure that smaller businesses have access to the same opportunities for innovation and growth as larger corporations.
Each of the schemes has differing levels of incentive (broadly speaking the SME scheme is more generous) - although these levels are about to reduce from 1 April 2023. I would therefore strongly advise anyone with a March 2023 year end to start planning an R+D claim now for both FY23 and FY22 – given you have one year to amend any previously submitted corporation tax return.
Your accountant or tax adviser should be able to help with you with your claim, but if not, there are a number of R+D claim specialists that can help. As with any advisory service it is worth speaking to a number of options to ensure that you get the right fit (and cost) for your organisation. Typically the fee structure is based on a percentage of the claim made. You do not have to use an advisor of course, but it may make sense, particularly for your first claim so you can then get a sense of what type and quantity of costs can be claimed.
In summary then there are two obvious ways that the R+D schemes may help your organisation. The first is if you are already committing resources and funds to R+D type activities. If this is the case then it is entirely possible that you are entitled to make an R+D claim which will effectively fund some of that spend. The second is if you don’t currently have any R+D expenditure but would like to. This scheme opens the door to R+D activity, which could be reclaimed (at least in part). You will need to ensure that your spend qualifies before you make any commitments but assuming it does, then this could lead you to the R+D Department you have always wanted.