R&D Tax Credits are a tax incentive and the biggest single funding mechanism provided by the Government for investment in UK business Research & Development.

MCS can assist your business to reclaim corporation tax from HMRC.

The Tax Credit is made available either as a tax deduction based on R&D spending or it may be possible for certain loss making small or medium sized companies (SMEs) to surrender their losses in return for a cash payment from HMRC.

Companies spending at least £10,000 in their accounting year on qualifying R&D are entitled to claim a deduction when calculating their taxable profits.  

Companies can claim back for up to 2 years after the end of the relevant accounting period (i.e., company year-end).

The Small and Medium-sized Enterprise Scheme

A company can only claim under the scheme for SMEs if it meets the definition of a SME for R&D Relief purposes:

  • Less than 500 employees, and:
  • Either - an annual turnover not exceeding €100 million
  • Or, a balance sheet not exceeding €86 million

Since August 2008, the tax relief rate on allowable R&D costs is 175% of qualifying expenditure.

The Large Company Scheme

If a company is not an SME (as defined above), then it can only claim under the Large Company Scheme.

Since August 2008, the tax relief rate on allowable R&D costs is 130% of qualifying expenditure.

What is R&D?

A basic definition is "work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology". Advances include new or improved products, processes and services.

The guiding line to distinguish R&D activity from non-R&D activity is the presence or absence of an appreciable element of novelty or innovation.  If the activity departs from routine and breaks new ground it should be included under R&D; if it follows an established pattern, it should be excluded.

Eligible Costs

  • Employee Costs - that is, employing staff directly who are actively engaged in carrying out R&D itself. The staff must be employed under a contract of employment directly with your company or organisation - not consultants, agency workers, or staff/directors whose contracts of employment are with other companies. However, these others may qualify under either the rules for staff providers or subcontractors.
  • Staff Providers - paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D. The staff provider needs to contract with the individual whose services they supply – not through another person.
  • Materials - consumable or transformable materials used directly in carrying out R&D. These are actual physical materials that are consumed in the R&D, and not things like telecommunication or data costs.
  • Payments to Clinical Trials Volunteers - the cost of relevant payments to subjects of clinical trials.
  • Utilities - power, water, fuel used directly in carrying out R&D, but not things like telecommunication costs and data costs.
  • Software - computer software used directly in the R&D.
  • Subcontracted R&D Expenditure - if your company or organisation is claiming relief under the SME Scheme, then you may be able to claim back 65% of what you spend on certain R&D activities carried out for you by a subcontractor.  If your company or organisation is not a SME, you can only claim expenditure on activities that are undertaken directly on its behalf by certain specific kinds of subcontractor. 

    R&D Tax Credits Questionnaire

 Interested?  Contact MCS Corporate «R&D Tax Credits»