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, you will generally claim under the merged RDEC scheme or, if you are a qualifying loss-making R&D-intensive SME, ERIS. ERIS is only available to qualifying loss-making SMEs that meet the R&D intensity condition, while other eligible companies will generally claim under the merged RDEC scheme.

One of the first compliance steps may be to notify HMRC that you intend to claim. For accounting periods beginning on or after 1st April 2023, a claim notification form is generally required if you are claiming for the first time or your last claim was made more than 3 years before the end of the claim notification period. That period ends 6 months after the end of the relevant period of account.

You will also need to submit an additional information form for the claim period before, or on the same day as, your Company Tax Return (CT600). If both are submitted on the same day, the additional information form must be sent first.

If you have a qualifying project and make a valid claim, here is how it can work under each scheme:

• Merged RDEC – a 20% credit is applied to qualifying expenditure. For example, qualifying expenditure of £10,000 would generate a £2,000 credit, which is then taxed as trading income, so the net benefit depends on your Corporation Tax rate.
• 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. To qualify for ERIS, a loss-making SME generally needs relevant R&D expenditure of at least 30% of its total expenditure for the period.

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 RDEC credit exceeds Corporation Tax due, the remaining amount is then worked through the statutory set-off steps and PAYE/NIC cap rules, and any final balance may be paid to the company. 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 PAYE/NIC cap rules can limit payable amounts under both schemes, although some claimants may be exempt.
3. Offset losses
   Sometimes – depending on the scheme – qualifying expenditure can increase tax losses that may then be carried forward or, where the rules allow, carried back.

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 relief. For accounting periods beginning on or after 1st April 2024, that is generally no longer the case – under the merged scheme and ERIS, receiving a grant does not by itself restrict relief on subsidised costs. For earlier periods, the older SME and RDEC rules still need to be considered.

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