United Kingdom
The UK scheme has different benefits for Large Companies (LCs) and Small and Medium Enterprises (SMEs). The regime offers profit-making SMEs an additional 130% deduction (230% super deduction) of qualifying expenditure from taxable profits; Or loss-making SMEs a cash credit of 14.5%. LCs are offered a 12% expenditure credit (R&DEC).
Technical justification of the claim is not required by law. However a document stating the nature of R&D activities is highly recommended.
Eligible costs have to fit within prescribed cost categories.
| UK Small and Medium Enterprises (SME)
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UK Large Companies (LC)
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| 130% tax deduction (230% Super Deduction) | Cash Credit | Research and Development Expenditure Credit (R&DEC) | |
| Benefit Overview
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This scheme applies only to profit making SMEs. The net benefit is 24.7% of qualifying expenditure. | If an SME is a loss making entity, it is able to surrender losses for a 14.5% cash credit. The net benefit is 33.3% of qualifying expenditure. | Large companies in the UK are eligible to claim on the R&DEC scheme for a 12% expenditure credit. This is an above the line credit. |
| Eligible Claim Period
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The UK uses a retrospective scheme for its research and development tax benefits. The scheme includes the ability to claim for eligible R&D expenditure two years from the end of a company’s accounting period. |
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| Historical Background
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The SME regime was launched in the UK in 2000. |
The LC regime was launched in the UK in 2002. R&DEC was introduced in April 2013 and has since replaced the historical LC regime. |
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Regimes for both SMEs and LCs have become ever more generous since their launch. |
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| Application Process
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R&D tax claims are reviewed in the UK by Her Majesty’s Revenue & Customs (HMRC), a non-ministerial department of the UK Government. Applicants are not required, but are advised to provide a full financial and a full technical justification for the claim, in the form of a report. HMRC aims to deliver the benefit 28 days after submitting the claim for SMEs and around 3-6 months for LCs. |
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| Regulating Body Practices
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R&D Tax Incentives are issued by HMRC. All claims for R&D tax benefits are to be submitted to HMRC in the tax return (CT600) for review. Amended CT600s are to be provided for claims made in respect of previous years. In the case of an enquiry, these documents are helpful in defending costs related to R&D projects. |
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| Claim Processing Time: There is no official timetable. The benefit could be immediate if it is a reduction of tax owed and inserted as an original submission in the tax return (CT600). If it were a credit of tax payed, the tax authority aims for 28 days. | Claim Processing Time: The tax authority aims for 28 days. | Claim Processing Time: There is no official timetable and is approximately 3-6 months from submission. | |
| Elligible Costs
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Note: LCs can only claim up to the total cost of the employees’ full NIC and PAYE costs in the financial period. This is the full NIC and PAYE cost, not just the apportioned cost. |
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| Issues to Consider
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HMRC’s R&D inspectors are not technical experts and may have trouble reading and understanding certain projects submitted to them. This may lead to an enquiry to ensure that the technical nature of the work meets the definition of R&D. | ||
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