Research and Development (R&D) tax relief for small and medium-sized enterprises

OverviewWhat is Research and Development (R&D) tax relief

SmallR&D ortax relief supports companies that work on innovative projects in science and technology.

You cannot claim if the advance is in:

• the arts
• humanities
• social sciences, including economics

What is small and medium-sized enterprise (R&D tax relief

SME) R&D tax relief allows companies to:

• deduct an extra 130%86% of their qualifying costs from their yearly profit, as well as the normal 100% deduction, to make a total 230%of 186% deduction
• claim a payable tax credit if the company ishas lossclaimed making,relief and made a loss, the payable credit is worth up to 14.5%10% of the surrenderable loss

To claim the reliefrelief, you need to be a SME and show how your project meets ourthe standard definition of R&D.

CompaniesIf whoyou’re are making theiryour first R&D claim can qualify for Advancetax Assurance.relief Ifas Advancea Assurance is granted, any R&DSME, claimsyou inmay the first 3 accounting periods will be acceptedable ifto they’reapply infor lineadvance with what was discussed and agreed.assurance.

Companies that can claim relief

You can claim R&D tax relief if you’re a SME with:

• less than 500 staff
• a turnover of under €100100 million euros or a balance sheet total under €8686 million euros

If your company has external investors, this can affect your SME status. You maywill need to include the figures of connectedlinked companies and partner companiesenterprises when you work out if you’re a SME.

You cannot claim SME R&D relief if the project is already getting notifiable state aid or you’ve been subcontracted by another company. However, you may be able to claim the R&D Expenditure Credit (RDEC).

Connected companies

The staff, turnover and balance sheets of any connectedlinked companiesor partner enterprises should be included in your total.

Linked enterprises

Your company is connectedlinked to another one if:

• it holds over 50% of the voting rights in another companyenterprise
• another companyenterprise holds over 50% of the voting rights in your company
• it has other rights which allow it to control another enterprise
• another company has other rights which allow it to control your company
• your company and another enterprise are both controlled by another party

Partner companiesenterprises

You have a partner companyenterprise if:

• another company holds over 25% of your voting rights or capital
• you hold over 25% of another company’s voting rights or capital

You will need to include a proportion of the staff, turnover and balance sheets of partner companies. This should be based on the percentage of voting rights and capital that connects the 2 companies.

For instance,example, if you own 30% of another company you should include 30% of its staff, turnover and balance sheets when calculating if you’re a SME.

CostsWhen you cancannot claim

You cancannot claim certainthe coststax onrelief thefor a project fromif:

• you’ve thereceived dateState youaid starttotalling workingmore onthan it7.5 untilmillion youeuros developfor orthe discoverproject
• you’ve received any other State aid (excluding the advance,SME ortax relief) for the project
• it’s isfor stopped.

  Employeework costs

  Forsubcontracted staffto workingyou

• it’s directlysubsidised onin thesome R&Dother project,way, youfor canexample claimby a proportiongrant, ofbut their:
  • salaries
  • wages
  • Classyou 1may Nationalbe Insuranceable contributions
  • pensionto fundclaim contributionson the part that is not subsidised

  YouFind out if you can claim forR&D administrativeexpenditure orcredit supportinstead.

  Check staffwhen whocosts workqualify

  Before toyou directlymake support a project.claim Forfor example,R&D humancosts resourcesto usedget totax recruitrelief or a specificpayable persontax tocredit, workcheck onthat the project.costs:

  • are Youpart cannotof claima forspecific clericalproject to make an advance in science or maintenancetechnology, workit thatcannot wouldbe havean beenadvance donein anyway,the likearts, managinghumanities payroll.

    Youor cansocial claimsciences, 65%including ofeconomics

  • meet the relevantstandard paymentsdefinition madeof toR&D
  • qualify anfor externaltax agencyrelief, iflisted theyin providethe staffsection for‘Which thecosts project.
    qualify’

  Subcontractor

  Which costs

  qualify

  You can claim 65%the tax relief on some of the relevant costs ofyou usingincur afrom subcontractorthe forstart yourto R&Dthe activities.end of the project.

  Software

  YouR&D canstarts claimwhen forwork softwarebegins licenceto feesresolve boughtthe forscientific R&Dor technological uncertainty and aends reasonablewhen sharethat ofuncertainty is resolved, or the costswork forto softwareresolve partlyit usedstops.

  The infollowing yourinformation R&Dwill activities.tell you which costs you can and cannot claim for.

  Consumable items

  You can claim for the relevant proportion of consumable items used up in the R&D., Thisthis includes:

  • fuel
  • materials
  • utilitiespower
  • water

  You cannot claim the costs if you sell or transfer ownership of the consumable items used up in the R&D.

  Clinical trials volunteers

  For R&D projects in the pharmaceutical industry, you can claim for payments made to volunteers involved in clinical tests.

  CostsData thatlicence cannotand becloud claimedcomputing

  YouFor cannotaccounting claimperiods for:beginning on or after 1 April 2023, qualifying expenditure is extended to include data licence costs and cloud computing costs.

  • the

    A productiondata licence is a licence to access and distributionuse a collection of goodsdigital anddata.

    Cloud services

  computing includes:
  • capitaldata expenditurestorage
  • thehardware cost of landfacilities
  • theoperating cost of patents and trademarkssystems
  • rentsoftware or ratesplatforms

  Work

  You outcan whenclaim thefor most data and cloud computing costs spent on R&D.

  Externally activityprovided startsworker and ends

  costs

  TheWorkers R&Dsupplied activityby startsa whenstaff youprovider beginsuch workingas toan resolveemployment agency, are classed as externally provided workers.

  You can:

  • claim 100% of the uncertainty.relevant You’llpayments, needif toyour identifycompany and the technicalstaff issuesprovider thatare needconnected
  • claim to65% beof resolved,the andrelevant makepayments suremade thereto a staff provider, which is not anconnected existingto solutionyour thatcompany, hasif alreadythey beensupply workedexternally out.
    provided workers for the project

  Staff costs

  TheFor staff working directly on the R&D activityproject, endsyou whencan youclaim solvefor the uncertaintyfollowing orcosts, stopas workinglong onas it.they Therelate activityto you claim R&D:

  • salaries
  • wages
  • pension relieffund forcontributions
  • secondary shouldClass end1 onceNational youInsurance havecontributions apaid workingby prototypethe thatcompany

  You solvescan thealso problem,claim andfor beforeadministrative youor gosupport intostaff production.

  Yourwho R&Dwork mayto restartdirectly ifsupport youa findproject, anotherfor scientificexample, orhuman technologicalresources uncertaintyused afterto you’verecruit starteda producingspecific theperson product.to Ifwork thison happens,the youproject canor claimspecialist forcleaning furtherstaff, R&Dthese whileare youknown tryas toqualifying resolveindirect it.activities.

  How

  You tocannot claim R&Dfor:

  • bonuses
  • redundancy relief

  payments
  • staff costs for clerical or maintenance work that would have been done anyway, like managing payroll

  Software

  You can makeclaim afor claimsoftware licence fees for R&D reliefand upa toreasonable 2share yearsof after the endcosts offor thesoftware accountingpartly periodused itin relatesyour to.R&D activities.

  Subcontractor costs

  You can claimclaim:

  • 65% of the reliefrelevant byR&D treatingcosts itmade asto a deductionsubcontractor
  • 100% fromof the company’srelevant profitsR&D forcosts if the accountingsubcontractor period.is Yourconnected claimto mustyour becompany

  Other madecosts inthat thedo companynot taxqualify

  You returncannot orclaim anfor amendmentexpenses torelating the return.to:

  You must send:

  • athe fullproduction Companyand Taxdistribution Returnof formgoods (CT600) and services
  • completedcapital tax computationexpenditure
  • formthe CT600L,cost ifof youland
  • the arecost claimingof apatents payableand taxtrademarks
  • rent credit or Research and Development Expenditure Creditrates

  YouRead can send more information toabout HMRCqualifying onlinecosts tofor supportR&D yourprojects claim.in ForCIRD82000 moreof information, read the ‘HowCorporate toIntangibles supportResearch yourand claim’Development section.Manual.

  Calculate yourthe enhanced expenditure

  Follow these steps to calculate the enhanced expenditure.

  1. Work out the costs that wereare directly attributable to R&D.

  2. Reduce any relevant subcontractor or external staff provider payments to 65% of the original cost.

  3. Add all costs together.

  4. Multiply the figure by 130% to get the additional deduction to put in to your tax computations.86%.

  5. Add this to the original R&D expenditure figure to get the enhanced expenditure figure which you can enter into your tax return.figure.

  If you make a trading loss, you can chosechoose to surrender this and claim a payable tax credit.

  Read more information about how to convert tax relief into payable tax credits in CIRD90500 of the Corporate Intangibles Research and Development Manual.

  HowBefore toyou support your claim

  You maymust usefollow thethese onlinesteps servicebefore toyou sendclaim HMRCthe detailstax torelief, supportor your R&Dclaim taxmay reliefnot claim.be valid.

  1. You’llFor needaccounting toperiods havebeginning alreadyor submittedafter your full1 CompanyApril Tax2023, Returncheck formif (CT600),you completedneed taxto computationsubmit and,a ifclaim younotification areform claimingto payablenotify taxHMRC credit,in formadvance CT600L toof make your claimclaim. beforeRead usingthe thisguidance servicewhich totells sendyou detailswhen toyou supportneed theto claim.

     Tonotify, use the onlineinformation service, you will need ato Governmentprovide Gateway user ID and password.how Ifto yousend doit.

  2. From not1 haveAugust a2023 user ID, you canmust createsubmit onean whenadditional youinformation firstform useto thesupport service.

     If your claimclaim. coversRead athe periodguidance ofwhich 12tells monthsyou orhow more,to submitsend athe separateinformation claimand forwhat eachyou accountingwill period.

     Details you’ll need to supportprovide. yourYou claim

     Itcan willsubmit helpit yourbefore claim1 August 2023 if you want to give us amore shortinformation.

  How summaryto thatclaim

  Claim explainsor howmake youran project:amendment using the Company Tax Return and:

  • lookedcomplete forthe ansingle advanceiXBRL incomputations sciencefile
  • put oran technology‘X’ andin aimedbox to656 achieve this advance
  • had to overcometell scientificus orthat technologicalyou’ve uncertaintysubmitted andthe howclaim younotification did thisform
  • couldput notan easily‘X’ bein workedbox out657 byto atell professionalus inthat you’ve submitted the field

  You’lladditional alsoinformation need:

  form
  • complete the startsupplementary andform endCT600L, datesif ofyou’re theclaiming accountinga periodpayable relatingtax tocredit theor R&D activityexpenditure —credit

  Guidance theseis shouldavailable beto thehelp sameyou datescomplete asyour theCompany periodTax coveredReturn.

  If by your CT600tax return

• yourrelief 10claim digitcovers companymore uniquethan tax12 referencemonths, (UTR)submit number
• thea totalseparate amountclaim offor taxeach reliefaccounting you’reperiod.

  You claiming

• can make a breakdownclaim offor yourtax qualifyingrelief R&Dup costs
• yourto unrelieved2 tradingyears lossafter forthe end of the claimaccounting period

it relates to.

Provide

Check detailsthe for‘Before upyou toclaim’ 10section R&Dto projects

Ifmake you’vesure claimedthat your tax relief on:claim will be valid.