Am I eligible and how much can I claim?
Types of R&D tax incentive
The amount of money you can get back in your claim depends on the scheme you qualify for. For accounting periods beginning on or after 1 April 2024 previous schemes were merged into a single R&D Expenditure Credit (RDEC) with Enhanced R&D Intensive Support (ERIS) available to qualifying SME’s.
The merged RDEC scheme is a taxable expenditure credit available to eligible trading companies subject to UK Corporation Tax. Even if a company qualifies for ERIS, it may choose to claim under the merged scheme instead, but both schemes cannot be claimed for the same expenditure
The merged R&D Expenditure Credit (RDEC)
Under the merged scheme, qualifying R&D expenditure is eligible for a 20% expenditure credit. Note that different rates apply to ring-fenced trades. The RDEC offers an above-the-line credit of 20% on eligible R&D costs. This credit can be used to offset Corporation Tax liabilities, and if the credit exceeds the tax due, the surplus maybe be paid to the company as a cash refund.
The effective amount of relief will depend on which rate the company pays tax at, ie 19%, 25% or the 26.5% marginal rate. If a company is paying Corporation tax at the 25% rate then this results in a net benefit of 15% (20% above-the-line credit less CT at 25%). Similarly, the effective net rate of benefit will be 16.2% and 14.7% respectively for Corporation Tax payable at 19% and 26.5%.
Enhanced R&D Intensive Support (ERIS)
The ERIS scheme provides additional support for loss-making, R&D intensive SME’s:
They can deduct an extra 86% of their qualifying costs (in addition to the 100% accounts deduction), resulting in 186% of qualifying costs being deductible when calculating their adjusted trading loss.
They can also claim a payable tax credit , which is not taxable and worth up to 14.5% of the loss that is surrendered..
To claim under the ERIS, a company must meet the intensity condition. This means for accounting periods starting on or after 1 April 2024, at least 30% of the total expenditure (including that of connected companies) must be on eligible R&D activities. There are special rules applying to companies registered in Northern Ireland.
Are you an accountant add want to add R&D Tax Credits to your expertise?
What R&D expenditure
can be claimed?
Your company can claim relief for costs that have been expensed through the Profit & Loss account and in certain circumstances you can also claim capitalised expenditure (providing that the assets purchased have been classified as Intangible Assets). The main areas that can be claimed are:-
staff costs (gross pay, employer’s NI and employer’s pension contributions)
agency workers (externally provided workers)
subcontractors/freelancers
software licence costs
consumable items (heat, light and power and materials and equipment used or transformed by the R&D process) and,
pure mathematics, data licences and cloud computing costs
You can also claim for qualifying indirect activities (supportive tasks that don’t directly resolve the core R&D challenge).
The merged RDEC scheme has introduced significant changes to how subsidised and subcontracted costs are treated; the new scheme removes restrictions on grants and subsidies and clarifies that the company in the supply train making the decision to undertake R&D can receive tax relief for expenditure on their R&D activities.