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What is R&D tax relief?

24 May 2024

Many businesses incur expenditure on innovative projects. If any of those projects is seeking to make an advance in the fields of science or technology, the costs of that project may be eligible for R&D tax relief.

The UK’s R&D regimes

For accounting periods beginning on or after 1 April 2024 the UK has two R&D regimes from which businesses could benefit: (i) the research and development expenditure credit (known as the RDEC); and (ii) an enhanced R&D intensive support regime (known as the ERIS regime) for R&D intensive SMEs.

How can the RDEC help businesses?

The RDEC is a taxable expenditure credit. The credit rate available to businesses for their qualifying expenditure is 20%.

You can use the credit to pay your company’s tax liabilities (including PAYE, VAT and corporation tax). Any excess expenditure credit left over once you have set it off against your company’s tax liabilities will be paid to the company by HMRC. HMRC will always make sure it gets paid first, but subject to that it becomes cash that you can deploy however you see fit.

Who can claim the RDEC?

To benefit from the RDEC you need to have a trading company that is within the scope of corporation tax, and be engaged in the sorts of projects that qualify as genuine R&D.

How can the ERIS regime help businesses?

The ERIS regime allows loss-making SMEs to claim: (i) an additional deduction of 86% on their qualifying R&D costs (to bring their total deduction for those costs to 186%); and (ii) a payable tax credit of up to 14.5% on their surrenderable losses.

Who qualifies for the ERIS regime?

To qualify for the ERIS regime, an SME needs to: (i) be loss-making; and (ii) have incurred R&D expenditure that is at least 30% of its total expenditure for a specific accounting period.

Can you submit a claim for both the RDEC and the ERIS regime for the same expenditure?

In short: no.

How do you claim?

You can submit a claim for the RDEC or the ERIS regime using your company’s annual tax return. If you would like to submit a claim, we recommend you speak with either an accountant or a specialist R&D advisor before doing so to ensure your company complies with its administrative obligations when lodging the claim. HMRC is vigilant to businesses ‘over-claiming’ the relief, and a significant proportion of claims are enquired into, so it’s good to get it right and avoid nasty surprises further down the line.

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