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Research and development (R&D) tax credits

The UK Government recognises that encouraging innovation is a vital component in a strategy for improving the UK’s productivity, performance and competitiveness. As a result, the research and development (R&D) incentives for both small and medium size enterprises (SMEs) and large companies have been enhanced in recent years to encourage and reward greater innovation in the UK. More information on how these incentives work is detailed below.

What this means for small companies

A simpler way for small businesses to apply for R&D Tax Credits. Find out more about this tool by watching the video.

The R&D tax credits available to small and medium enterprises (SMEs) have been substantially increased over recent years. The super-deduction available has increased to 230% from 1 April 2015 with the cash back available to loss making SMEs now 33.35% of the qualifying expenditure.

The rise in the rate of relief for SMEs means that the cash value of claims for tax paying companies is £26 for every £100 of R&D spend from April 2015 (based on a 20% tax rate) and £33.35 for companies with losses.

These changes have made claiming R&D credits a lot more valuable to SMEs. Our Nifty R&D tax credits tool reduces the time and cost of SMEs claiming R&D credits.  Watch the video to find out more.


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What this means for large companies

HM Revenue & Customs (HMRC) have made the large company regime much more generous by introducing the Research and Development Expenditure Credit (RDEC).

RDEC allows larger companies from 1 April 2013 to recognise the benefit of their R&D claim effectively as a grant against cost, opposed to within the tax line, which helps add visibility. Loss makers are now also able to claim cash back from HMRC.

From 1 January 2018, the credit rate increased to 12% (from 11%), providing a net cash benefit of 9.72% at a 19% tax rate. Unlike the 'old' superdeduction scheme, which only had a cash value if the company was paying corporation tax; RDEC is payable regardless of the tax position, subject to some restrictions including a cap based on PAYE and NI.

Up until 1 April 2016 you had the option to continue claiming under the previous super-deduction R&D scheme, instead of the new RDEC. The old scheme works by providing an additional 30% super-deduction for tax purposes on qualifying R&D expenditure. £10m of qualifying R&D spend would result in an additional deduction of £3m, which at a 20% tax rate results in a £600k cash saving.

Examples of how we have helped our clients

A large technology business

Whilst the clients team continued to develop and innovate new products, we helped implement a system that minimised the effort required to capture the qualifying R&D activity and associated expenditure so that the claim for R&D relief was maximised.

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An automotive investor

We helped develop and agree an R&D claims process for our client. This was agreed with HMRC. The process effectively fixed the typical R&D percentage for each development function, depending on the type of project/programme being undertaken. HMRC agreed that the percentages need only be revisited every few years. This has automated the process enabling future claims to be carried out in-house.

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A global engineering company

R&D projects covered Environmental Control (Air Systems), Life Support, Hydraulics, and Electronic Control & Data Systems. As a large number of projects were undertaken each year we used a categorisation process which the company could run in-house in future periods. Claims have been agreed by HMRC for many years without any issues.

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A small technology company

This business had an extensive R&D programme and needed to understand the interactions of claiming the SME R&D credit with claiming grants and other funding. We advised them on these issues and helped the company claim a cash credit of over £2 million for one year.

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A large pharmaceutical company

We advised the group on the R&D regimes and grants available across the world to help them understand the optimal locations for their R&D operations.

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Contact us

Rachel  Moore

Rachel Moore

Partner, R&D and patent box specialist, PwC United Kingdom

Tel: +44 (0)7841 561935

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