Definition of R&D tax credits

Generally, enhanced deductions on research and development (R&D) are available in respect of qualifying revenue R&D expenditure. Companies can claim an enhanced deduction at a rate that will depend on whether they are large or small and medium sized companies (SMEs). SMEs can claim a deduction from taxable profits of 230 percent of their qualifying R&D expenditure and. if loss making, will be able to claim a cash payment in return for forfeiting a proportion of their losses. Large companies may claim a deduction of 130 percent of their qualifying revenue R&D expenditure. Only certain expenses, e.g. a company’s own staff costs, are eligible.

R and D tax credits for large companies were an alternative to the RDEC regime, but from 1 April 2016, when the large company tax credits regime ended.

There is a separate regime for companies of all sizes where the R&D expenditure is capital in nature for tax purposes. This allows a 100 percent deduction as expenditure is incurred but does not provide any enhancement to amounts. [1]

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