Tech investment and competitiveness remain lodestars of relief regime.
Apart from a new anti-avoidance measure introduced in the Budget, the R&D tax relief regime is largely unchanged, with a continued focus on encouraging investment in technology and improving competitiveness.
To help prevent abuse of the payable credit, from 1 April 2020 the amount of payable R&D tax credit that a qualifying loss-making company can receive in any tax year will be restricted to three times the company’s total PAYE and NIC liability for that year.
For projects to qualify, they need to be undertaken to ‘advance in overall knowledge or capacity in a field of science or technology through the resolution of scientific or technological uncertainty’.
As a refresher, R&D relief is given in two ways: by enhanced deduction (SMEs) or by payable credit (SMEs with no tax liability or Research and Development Expenditure Credit).
The amount of relief depends on when the R&D expenditure was incurred.
Currently companies can claim an additional 130% deduction of actual research costs incurred after 1 April 2015. The additional deduction is claimed by adjusting the trading profit in the tax computation.
Loss-making companies or those with no corporation tax liability may claim a 14.5% tax credit, either as a cash receipt or a reduction other taxes, subject to the new NIC and PAYE restriction.
Research and Development Expenditure Credit (RDEC) scheme
Companies that do not qualify for the SMEs regime may be entitled to a cash refund.
From 1 January 2018 the repayable tax credit (RDEC) increased to 12% (previously 11%).
Companies in groups can surrender the RDEC against another group company’s corporation tax liability.
Summary of the schemes – the last five years
From 1 January 2018
From 1 April 2015
From 1 April 2014
From 1 April 2013
Enhanced deduction rate
Above the line credit
The definition of size for the purposes of R&D tax relief regime is distinct and has no link to the Companies Act 2006 definition.
A small company meets the following two conditions:
headcount of less than 500 staff
turnover of less than €100m OR balance sheet total of less than €86m.
(Companies are required to convert their balance sheet numbers to euro, using the closing exchange rates at the balance sheet date, in order to assess their size.)