Research & Development (R&D) Relief and Tax Credit Service

Types of R&D relief you can claim

This is where things get complicated. Due to recent changes in tax law, which scheme you can use will differ depending on the size of your company and the financial period you are claiming for.

If you are submitting a claim for a period that began on or after 1^st April 2024 then you will be required to use either, the research and development expenditure credit merged scheme (RDEC) or the enhanced research and development intensive support scheme (ERIS) both of which replaced the previous SME and RDEC schemes.  Which scheme you can claim under will depend on several factors such as, size of business, level of profits and level of expenditure, amongst others.

The first, and one of the most important steps is to submit a notification to HMRC of your intention to submit an R&D claim.  Whilst there are certain exemptions to this step, if it is not done within six months of the year end, and it is required, you will not be able to make a claim.

If you have a qualifying project which, is approved by HMRC, here is how it would work for each scheme:

• RDEC – a 20% credit will be applied to the qualifying expenditure – Meaning if you have qualifying expenditure of £10,000 you will receive a credit of £2,000 which is then taxed at 25%, leaving you with a credit of £1,500.
• ERIS – your qualifying expenditure is enhanced by 86% - Meaning if you have qualifying expenditure of £10,000 this would be enhanced to become an expenditure of £18,600 for tax purposes.

What happens next depends on a number of factors, including whether your business is making a profit. In a nutshell, there are three types of relief available:

1. R&D Tax Relief
   If your company is profitable, you would only be able to claim under the RDEC scheme as the ERIS scheme requires you to be loss making (before any enhanced deduction).  Under the RDEC scheme the credit would be set off against any Corporation Tax due for that financial year.
2. R&D Tax Credits
   Under the RDEC scheme if your credit is more than the tax due you would be able to receive a cash repayment for the excess amount.  If you are loss making and therefore able to claim using the ERIS scheme you could receive a credit of 14.5% of the surrenderable losses which would not be liable to tax.  It is important to note that the tax credits for both schemes are capped by your PAYE & NIC liabilities.
3. Offset losses
   Sometimes your best option is to use the qualifying expenditure to enhance your losses and offset them against future or past taxable profits which would reduce your corporation tax liability for them financial years.

If you are claiming for a period that started before 1^st April 2024, the previous SME and RDEC rules would apply to your claim.  There have also been many changes to the submission requirements regardless of what period or scheme you are claiming for.

We therefore strongly recommend you seek advice before applying for any of these reliefs. Choose the wrong one or miss any of the filing requirements and you could lose out!

R&D Tax Credits and Innovation Grants

If you receive – or want to apply for – a grant from Innovate UK, then things get even more complicated!

There’s a common belief that you can’t benefit from both Innovation Grants and R&D Tax Credits. This isn’t actually true, but it does take careful planning.

THP can help you understand the complex way in which R&D grants from Innovate UK and other sources interact with R&D tax reliefs – and to plan accordingly. Give us a call to find out more.

Let THP do the heavy lifting!

THP has helped many businesses claim thousands of pounds in R&D reliefs. We will work with you to provide specialist advice and prepare strong claims that cover all of your qualifying R&D activity and costs.

We’ll deal with HMRC on your behalf and make sure your claims are processed as speedily as possible, securing you valuable extra money to reinvest in your business.

Get started – contact us today