R&D tax relief has become an increasingly popular option for companies around the UK who are carrying out innovative work as part of their business processes.
But where did it come from?
We’ve put together a guide to answer this question, letting you know some of the history of R&D tax relief in the UK and how it may be of benefit to your business.
Table of Contents
- What is R&D tax relief?
- Why was R&D tax relief introduced?
- When was R&D tax relief introduced?
- What classes as R&D and who qualifies?
- What are the current R&D tax relief rates?
- How to move forward with a claim
What is R&D tax relief?
R&D tax relief is a UK tax incentive that was designed to encourage companies to invest in Research & Development.
Companies can reduce their tax bill, or claim payable cash credits, as a proportion of their R&D expenditure in each given year. Any company in any industry may be eligible to make a claim.
Why was R&D tax relief introduced?
The relief was introduced to encourage companies to invest in R&D, in turn enhancing innovation and wealth creation in the economy.
It has been of benefit to a number of different companies as they look to push things forward within their respective industries.
When was R&D tax relief introduced?
The scheme was introduced in 2000 when many other major economies were already operating R&D tax incentive schemes.
The UK scheme, when it was originally introduced, was only open to small and medium sized enterprises (SMEs), with a separate scheme for large companies launched in 2002.
2013 saw a further scheme introduced for large companies, known as the Research and Development Expenditure Credit (RDEC). This is a payable credit scheme and the relief is also known as ‘Above the Line R&D Tax Relief’ since the payable credit is shown above the tax line and can be accounted for as income in a company’s profit and loss statement.
RDEC and the original R&D scheme for large companies ran alongside each other for a number of years, but since April 2016 all claims for R&D undertaken after that date must be made under the RDEC scheme. For profit making companies, RDEC is offset against corporation tax liability, and loss-making companies can receive a cash payment or a reduction of other taxes due.
What is R&D and who qualifies?
The conditions defining what activities and expenditures qualify as R&D are generally the same in both the SME scheme and the large companies scheme. Any company carrying out R&D is likely to qualify for the relief.
Whatever size or sector, if a business is taking a risk by attempting to resolve scientific and/or technological uncertainties, then they are likely to be carrying out activity that could qualify for an R&D claim.
What are the current R&D tax relief rates?
Since the scheme’s introduction, rates for R&D Tax Relief have increased. When first introduced, the enhanced deduction rate for SMEs was 150%, rising to 175% in 2008, then increasing more rapidly to its current level of 230% since April 2015.
Under the original large companies scheme, the enhanced deduction rate was 125% in 2002, rising to 130% from 2008. The RDEC payable credit rate was originally 10% in 2013, rising to 12% in January 2018 and 13% in April 2020.
How to move forward with a claim
Since the introduction in 2000, R&D tax relief has been widely regarded as a resounding success. The relief has survived numerous government changes and the 2008 financial crisis and remain a central pillar of government business policy. This looks set to continue going forward.
For more information on making your own claim, you can view a range of guides put together by our experts over on this page.
If you want to find out more about the specifics of your potential R&D claim and how our team could guide you through the process, get in touch with us today by calling 01204 41 42 43 or emailing us via our Contact page.