Research and development (“R & D”) tax relief is a government-sponsored relief to encourage companies to undertake innovative activities. Activities qualifying for R & D tax relief are those seeking to achieve an advance in science or technology through the resolution of scientific or technological uncertainty.
The R & D legislation acknowledges that although companies can receive external funding for an R&D project, they can still qualify for R&D tax relief.
Funding includes the following:
3rd party funding e.g. monies received by a customer to undertake a specific R&D project
There are two R & D tax relief schemes: the SME scheme and the RDEC scheme (the SME scheme providing a greater amount of tax relief per pound of qualifying expenditure). Large companies will claim R & D tax relief under the RDEC scheme. However, a SME-sized company is not always eligible to claim under the SME scheme, for example where the R & D is funded.
For a SME-sized company, whether the qualifying R&D project falls under the SME scheme or the RDEC scheme is dependent on the type of funding received for the R & D project.
If the funding is not a Notified State Aid, only the qualifying expenditure subsidised will be eligible for relief under the RDEC scheme. However, any other non-subsidised qualifying expenditure for the same project will qualify for relief under the SME scheme. (Please note that De Minimis Aid is not classified as a Notified State Aid for these purposes.)
If a company receives a Notified State Aid grant for the R&D project, all qualifying expenditure of that project will qualify for relief under the RDEC scheme.
Trying to figure out whether a grant received is Notified State Aid or not can be hard to distinguish therefore a review of the documentation is required when preparing an R&D tax relief claim.
How AAB can help you:
Reviewing the funding documentation
Using our connections with grant funding providers where necessary to classify the funding
Working with you to prepare and submit claims to HM Revenue & Customs and deal with any resulting queries
For more information please contact Moira Kelly (email@example.com) or your usual AAB contact.
To find out more about Moira and the Corporate Tax team, click here.