Corporation Tax

Research and development (R&D) expenditure ― overview

Produced by Tolley
  • 03 Dec 2021 11:30

The following Corporation Tax guidance note Produced by Tolley provides comprehensive and up to date tax information covering:

  • Research and development (R&D) expenditure ― overview
  • Types of R&D tax relief and conditions
  • Meaning of SME and large companies for R&D
  • Moving between an SME and a large company - period of grace
  • 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
  • Proposed changes to R&D relief

Research and development (R&D) expenditure ― overview

Types of R&D tax relief and conditions

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

  1. 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 R&D allowances in the Business premises renovation allowances guidance note

  2. 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.

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.

See the Research and development tax relief

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