Understanding UK Research and Development Tax Credit
What is HMRC R&D Tax Credit? Companies investing in research and technology can claim relief from Corporation Tax and make a substantial saving. • The Scheme was first launched in 2000 • Around £6 billion has been claimed by UK companies between 2000 and 2010. • 24,000 companies have claimed this relief. There are two different schemes, viz. • The Small or Medium-sized Enterprise Scheme • The Large Company Scheme SME’s with less than 500 employees or with a turnover of £86 million can claim relief from Corporation Tax. Those with no tax bill can seek a cash payment. Large Companies Scheme is now replaced by the Above the Line credit scheme wherein a company with no tax bill can seek a cash replacement.
How Does the R&D Tax Credit Work- Understanding the Nitty-gritties? •
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The ATL (Above The Line) Scheme is not made compulsory until 2016. Currently the Large Company Scheme and the ATL run concurrently. ATL credit will be paid at headline rate of 10%. This can offset the debit in a profit and loss account statement. For large company: the R&D expenditure is multiplied by 30% of the corporation tax of 24%. This comes to £7.20 for every £100. For small company: the R&D expenditure is multiplied with 125% of small profits of 20%. This saves £25 for every £100 spent.
What are the Preconditions to Claim Tax Credit To make a successful claim for R&D Tax Credit, • • • • •
The company should pay Corporation Tax Credit cannot be claimed by a sole trader or a company that is in partnership. The company’s current financial records must be up to date and should not cast a doubt about its ability to continue in business Claim can be made only for revenue expenditure such as premises cost and wages. Claim must be made within 2 years of the end of accounting year during which the expenditure was incurred.
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