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Research & Development FAQs

Which R&D scheme should I use for my company’s R&D tax relief claim?

The basic eligibility criteria for making a claim are:

  • You are a UK company that pays Corporation Tax.

  • You are working on and investing money in qualifying R&D projects.

  • You are a going concern (not in liquidation or administration).

Additional eligibility criteria apply to the two different R&D tax relief schemes. These schemes initially sort companies by size of staff and bank balance:

  • SME R&D Tax Credit Scheme: for companies with up to 500 members of staff and either £86m gross assets or £100m turnover.

  • Research and Development Expenditure Credit (RDEC) scheme: for companies with more than 500 employees and who go over the SME scheme’s financial thresholds.

If your company is over both the £86m gross assets and £100m turnover ceilings, you will need to use the RDEC scheme, even if you have less than 500 employees.

As an SME, there are certain times when you are obliged to use the RDEC scheme. This can be because you have secured particular grants, or you are working on R&D projects as a subcontractor.

What happens to my R&D tax relief if my company changes from one type of business to the other?

Your business does not maintain a static definition and the R&D tax relief rules account for this expectation of change. There is an inbuilt ‘period of grace’, which means that you keep your current R&D status for a year after your company moves from one bracket to the other. It says that you have to be in your new state, consecutively, for two years. This applies to SMEs growing to RDEC size and RDEC companies adapting to become SMEs.

The only time this year of grace does not apply is if an SME is being bought by a large corporation or group. In this instance, the SME is regarded as a large company for R&D tax credit purposes for the whole duration of its acquisition. This regulation has the most impact in industry sectors that see a lot of merges and acquisitions and needs to be seriously considered by the SMEs involved.

Financial difference when switching schemes

The SME R&D Tax Credit scheme has a higher rate than the RDEC scheme.

  • Change from SME to RDEC = reduced R&D rate to 10p for every R&D £1 you spend (from 33p)
  • Change from RDEC to SME = increased R&D rate to 33p for every R&D £1 you spend (from 10p)

There are other differences between the schemes that affect what you can claim for and how you receive your money.

Do I have to spend a minimum amount on R&D to make a claim?

No, there is no longer a minimum R&D spend imposed on R&D Tax relief claimants. This is a slightly confused area because there was a £10,000 minimum spend limit in place up until 1st April 2012.

Can I claim R&D Tax Credits as a sole trader?

No, sole traders cannot claim R&D Tax Credits because they do not pay Corporation Tax. As it is a Corporation Tax relief, if you don’t pay it, you can’t claim it.

Can we claim R&D Tax relief as an LLP?

No, Limited Liability Partnerships (LLP) can’t claim R&D tax relief through either scheme because they do not pay Corporation Tax.

The only exception to this rule is if you have a corporate partner as part of your LLP. It is then possible to submit a claim for R&D based on their profit share percentage of your R&D projects. This is because they do pay Corporation Tax on their LLP profits.

What are the main benefits of the RDEC scheme?

The RDEC scheme has now fully replaced the large company scheme and there are three major benefits:

  1. If your company is making a loss, you can get cash credit. Previously, under the Large Company Scheme you could only offset the amount against another financial period or company.
  2. It provides a more reliable base on which to make your future investment decisions because it is a separate entity to your overall tax situation.
  3. It is now above-the-line in terms of your balance sheet. This meets one of the government’s targets to make R&D tax relief “more visible” in showing profitability in the accounts of large companies.

What will it cost to use your service to process my claim?

We do not charge any upfront fees and we don’t sign you into a long term contract. We have a success based fee structure, so if your claim is rejected you don’t pay us a penny. Our 10% of your claim fee is excellent value and ceilings at £25,000.

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