Research and development (R&D) tax credits are a valuable government tax relief that rewards UK companies for investing in innovation.
Companies that spend money developing new products, processes or services; or enhancing existing ones, are eligible for a cash payment and/or corporation tax reduction.
R&D tax credit rates are the equivalent of up to 33p for every £1 of qualifying expenditure.
They can be used as an alternative to innovation grants for research and development funding. Sometimes they can complement them too.
The way you claim tax relief depends on the size of your company.
If eligible, you can typically claim R&D tax relief for your last two completed accounting periods. In other words, while in your 2017 accounting period, you can consider your R&D tax credit 2015 & 2016.
They are calculated based on your R&D spend.
Qualifying expenditure is identified and enhanced by the relevant rate to produce your ‘enhanced expenditure’. When deducted from your taxable profits, or added to your loss, this will give you a corporation tax reduction if you were profitable, a cash credit if you were loss-making, or a combination of the two.