RESEARCH
AND DEVELOPMENT (R&D) TAX CREDITS
Summary
About R&D tax credits
R&D
tax credits - brief outline for companies
What is R&D for tax
purposes?
Contacts
Useful Links
Research and development (R&D) can help
companies create value and become more profitable through
generating new and
more competitive products, services and processes and entering
new markets. The Government has introduced tax incentives for
companies to undertake R&D, to encourage increased investment
in future success.
Tax credits
for R&D by small
and medium sized (SME) companies and by large
companies can be obtained via the corporation tax
system. Rules for the R&D tax credits, the definition of
R&D for tax purposes (“the DTI Guidelines”) and tax
inspectors' guidance on how to interpret the definition (“the
Commentary on the DTI Guidelines”) are available via the
Inland Revenue's R&D tax credits page. (Please note
that DTI is not responsible for the content of external sites.)
A brief
summary of what the credits cover is below.
-
Available
to companies of all sizes
-
Applies to
companies which spend a minimum of £10 000 p.a. on
qualifying R&D
-
Claimed
via corporation tax return – 3 boxes to fill in on form
-
Qualifying
expenditure is the cost of R&D staff (excluding benefits
in kind), plus some other direct costs such as materials used
up in the R&D, and some subcontracting costs
-
Capital
expenditure is not eligible – it is covered by
R&D allowances instead (see the
Inland Revenue's R&D page for details)
-
SMEs
not in profit can claim a repayable tax credit on R&D,
surrendering corporation tax losses for a payment of 24p in
the pound.
-
SMEs which
are not eligible for the SME credit in some circumstances (e.g.
when someone else funds the work, such as SMEs in receipt of a
Grant for Research and Development) can get the 'large
company' R&D tax credit.
The
Secretary of State for Trade and Industry has published
Guidelines
on the meaning of R&D for tax purposes which from 1
April 2004 define what
activities may qualify for various R&D tax reliefs including
the R&D tax credits. Previous
Guidelines cover activity before this date. The
R&D
Guidelines page has more information on this change.
The basis of the definition of R&D laid down in the Guidelines is:
-
R&D for tax
purposes takes place when a project seeks to achieve an advance in
science or technology.
-
The
activities which directly contribute to achieving this
advance in science or technology through the resolution of scientific
or technological uncertainty are
R&D, as are some "qualifying
indirect activities".
-
Activities other than qualifying indirect activities which do not
directly contribute to the resolution of the project’s scientific
or technological uncertainty are not R&D.
-
You
may want to seek professional advice before considering a
claim for R&D tax credits.
-
Inland
Revenue inspectors in your local tax office will often be
happy to discuss a possible claim in advance, and it can be
helpful for companies or their advisers to do so.
If you want to ask a question about claiming
R&D tax credits, please contact
your local tax inspector.
Information
on R&D tax credits and Vaccines tax credit can be found on the
Inland Revenue website. (Please note that DTI is not responsible for the
content of external sites.)
An Inland Revenue note setting
out Improvements
To Research And Development Tax Credits associated with Budget 2004.
Information on
DTI
support for innovation and technology is available from the DTI
website.
How R&D helps companies create value and
profits is illustrated in the annual R&D
Scoreboard and Value
Added Scoreboard.
Back to the DTI
home page.
Page
last updated: March 2004
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