Outline of tax relief for research and development (R&D) expenditure

By Tolley
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The following Owner-Managed Businesses guidance note by Tolley provides comprehensive and up to date tax information covering:

  • Outline of tax relief for research and development (R&D) expenditure
  • Types of R&D tax relief and conditions
  • Meaning of SME and large companies for R&D
  • SME R&D tax relief
  • Large company R&D tax relief
  • Comparison of effective tax savings under different schemes
  • Common misconceptions about R&D tax relief

Types of R&D tax relief and conditions

Expenditure on R&D can be relieved in the following ways:

  • for a trading company, revenue expenses are allowable as a deduction against the profits of the trade, and capital expenditure may be eligible for a 100% R&D allowance as detailed in the Research and development tax relief: capital expenditure guidance note (CTA 2009, s 87)
  • in addition, for companies only, qualifying expenditure on R&D is eligible for additional R&D tax relief, the type of relief will depend on whether the company is a small or medium sized enterprise (SME) or a large company (see below)

There is a requirement for both the SME and large company R&D reliefs that the R&D must be relevant R&D for the claimant company which means that it is related to a trade carried on by the company or the trade of the company will be derived from the R&D in the future.

CTA 2009, s 1042

In addition, the qualifying R&D expenditure has to be allowable as a deduction in computing the profits of the trade subject to corporation tax. This rule is relaxed for intangible assets where revenue R&D expenditure is included in the cost of the intangible on the balance sheet. In this situation, the intangible R&D expenditure can be claimed in full in the year when it is incurred as long as all other conditions for R&D relief are satisfied. Any subsequent amortisation would not be allowed as a deduction.

CTA 2009, ss 104A, 1044, 1308

See the summary diagram in Research and development tax relief summary diagram which summarises R&D tax relief.

Meaning of SME and large companies for R&D

To qualify as an SME, the company

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