Everyone likes an alliterative title opening, don’t they? Takes you back to school days where you mastered similes, metaphors and alliteration along with other figurative language devices.

Today though, that title (alliterative again – last one we promise!) rings true for so many companies, with many unaware of the tax savings they can make from research and development.

Firstly, a reminder of what they actually are and mean:

Research and Development (R&D) Tax Credits are a UK tax incentive designed to encourage companies to invest in R&D.

Companies can reduce their tax bill or claim payable cash credits as a proportion of their R&D expenditure.

They’re a fairly recent phenomenon too, having being introduced in 2000, just twenty years ago.

The scheme was introduced in 2000 for small and medium enterprises (SMEs), with a separate scheme for large companies launched in 2002 (see R&D Expenditure Credit or Above the Line R&D Tax Relief). Any company carrying out R&D is likely to qualify for the relief. The definitions of eligible R&D and eligible costs are reasonably broad, and eligible R&D activities often take place across the whole range of company operations.

What you may or may not realise is that the scope for claiming R and D tax credits is broad. It covers many sectors, like the examples highlighted on our Case Studies, like: food and drink,  architecture and product development, to highlight just three examples.

How are they calculated?

They are calculated from your expenditure on R and D. You need to highlight qualifying spendings and create what is known as “enhanced expenditure”.

You then have three potential outcomes:

  • a reduction in Corporation Tax if you are making a profit
  • you can get a cash credit if you are suffering losses
  • or a combination of the two

So how much can you invest in R and D?

We know you’re unlikely to be one of these behemoths but the list does highlight R and D expenditure by these companies:

  • Amazon: $22.6 billion
  • Alphabet, Inc.: $16.2 billion
  • Volkswagen: $15.8 billion
  • Samsung: $15.3 billion
  • Intel: $13.1 billion
  • Microsoft: $12.3 billion
  • Apple: $11.6 billion
  • Roche: $10.8 billion
  • Johnson & Johnson: $10.6 billion
  • Merck: $10.2 billion

Key points:

  • R&D represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings.
  • R&D allows a company to stay ahead of its competition.
  • Companies in different sectors and industries conduct R&D; pharmaceuticals, semiconductors, and technology companies generally spend the most.

You now hopefully know more about R and D tax credits and to find out more, make sure you bookmark this website and follow our LinkedIn company page.

To find out whether you are eligible, contact us today.