First introduced in 2000, R&D tax credits are one of the UK government’s ways of spurring businesses to innovate and develop new products and services in the UK. The reliefs ease the cost of R&D spending in the UK and so contribute to business-based innovation in the UK. They are one of a number of policies aiming to make the UK economy more competitive internationally.
The UK corporate tax regime offers companies or organisations liable for Corporation Tax (CT) a relief on spending on research and development (R&D). There are two schemes, the small or medium-sized enterprise (SME) scheme and the large company scheme. R&D activities have to meet criteria for purposes of the relief and be appropriately accounted for. R&D tax credits can make a difference to a company’s finances. Its value depends on the size of company, its tax rate, and eligible activities. Small companies (up to 500 people) can claim at a higher rate and qualify for extra financial support if they are loss making. The large company scheme has recently been adapted to allow loss-making firms to get a cash grant and for the relief to be matched directly to costs incurred rather than as a reduction in CT due.
These changes were introduced from 1 April 2015, after a long consultation period and extensive submissions by businesses, industry associations and others. SMMT separately and in partnership with EEF and PWC lobbied firmly for the change to the large company regime.
Significantly, the new regime means spending on R&D can be focused in the operating costs of a business and not accounted for as a super-deduction from final CT due. As such it should reach the R&D budget holders who plan and shape R&D investments. It is hoped that this increased visibility will magnify its impact on investment decisions.
Previously, the regime only gave saving where a company owed HMRC CT on its profits. This is often not the case for some business that may have been investing heavily in R&D technologies for some time, carry accumulated losses, incurred in earlier restructurings or the major recession of 2008/09. The benefit of the revised regime is that firms can elect for the credit to be payable (much like a grant) irrespective of its CT tax position. So for the first time companies that have losses can gain immediate cash contributions to offset their R&D costs. SMMT encourages members to check their business operations and ensure that, if eligible, they take full advantage of this new R&D Tax Credit regime.
SMMT encourages members to take full advantage of this new R&D Tax Credit scheme.