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March 2012

R & D Tax Credits Overview

Two schemes for claiming relief for businesses that pay corporation tax:

SME Scheme

Less than 500 employees either as a stand alone site or group total
Less than 100M euro turnover
Balance sheet not exceeding 83M euro
Subcontractors can’t claim as an SME if they have been subcontracted to do the work by someone else, but they might be able to claim under the large employer scheme
From 1st April 2011 can claim 200% of R&D Costs incurred (this rises to 225% on 1st April 2012)
Have to spend at least £10000 on R&D (this limit will be removed from expenditure incurred after 1st April 2012)
There is no upper limit on R&D expenditure that can be claimed

Large Company Scheme

Exceeds the SME size limits above
Have to spend at least £10000 on R&D (this limit will be removed from expenditure incurred after 1st April 2012)
There is no upper limit on R&D expenditure that can be claimed
Can claim 130% of R&D Costs incurred

What qualifies as an R&D project

A project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability. See below for how to find out what this means and how to show a project meets these terms. It must be related to your company or organisation's trade - either an existing one, or one that you intend to start up based on the results of the R&D

What costs can be claimed

Staff – employing people that are actively engaged in carrying out R&D.  Must have contact of employment (consultants and agency workers not eligible)  Paying a staff provider for staff who are actively engaged in R&D might also be eligible

Materials – consumable or transformable materials used directly in carrying out R&D.  Not telecommunications or data costs.

Payments to clinical trial volunteers

Utilities – power, water, fuel used in directly in carrying out R&D, but not things like telecommunications costs and data costs

Software – computer software used directly in R&D

Subcontractors – if your company or organisation is claiming relief under the SME Scheme, then you may be able to claim back 65 per cent of what you spend on certain R&D activities carried out for you by a subcontractor.
Capital – can’t generally claim under R&D Tax Credits, but should be able to claim under R&D Capital Allowances

When to claim

You must make any claim for R&D Relief in your Company Tax Return or amended return. The normal time limit for making your claim is two years after the end of the relevant Corporation Tax accounting period.

How to claim

You claim for R&D Relief by putting an X in either Box 99 (SME) or Box 100 (large companies) of your Company Tax Return, and in both cases, put the enhanced expenditure in Box 101 - that is, the actual amount spent multiplied by 200 per cent or 130 per cent as appropriate. You should also include this enhanced figure in your calculations of the profit (Box 3) or loss (Box 122) for the period.

If your company or organisation is a SME and you want to convert some or all of the tax relief into payable tax credits, you will also need to put the amount payable to you in Box 87, Box 89 and Box 143 - and don't forget to put an X in the 'repayment due for this return period' box on page 1.

How you'll get your R&D Relief or tax credit

If you're just claiming relief, this will reduce your company or organisation's profit chargeable to Corporation Tax for the relevant accounting period. There's nothing further for you to do. But if you have chosen to give up your enhanced relief to receive tax credits instead, or if you have submitted a claim to carry back a loss to be set off against profits of a previous accounting period, then HMRC will make the payment after they receive your return.

Further info can be found on the HMRC website:


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Kate Dallas Wood
Kate Dallas Wood