Types of R&D Schemes

A. SME Scheme (Small and medium-sized enterprises)

Small and medium-sized enterprises (SMEs) may be eligible for a "super deduction" to reduce their taxable income or, if they incur a loss, a cash credit. A claim must be submitted within 2 years of the close of the accounting period to which it corresponds under this system.

Benefits

• If you make qualified technical investments that lower your taxable income, you can deduct an extra 130% of those investments from your taxes.
• Giving up a loss in exchange for a tax refund (equal to 33 percent of the amount spent)
• A loss-making small or medium-sized enterprise (SME) will have a limit of £20,000 added to three times the amount paid in respect of PAYE and Class 1 NIC obligations for any accounting period commencing on or after 1 April 2021 for any R&D tax credit that is receivable to it. Companies whose due credits total less than £20,000 are exempt from the limit. If both the claimant company's employees are engaged in the act of creating, preparing to create, or actively managing IP, and the claimant company's expenditure on connected party resources does not exceed 15% of its qualifying R&D expenditure for an accounting period, then the claimant company is exempt from the cap.
• Small and medium-sized enterprises (SMEs) that perform R&D on behalf of major corporations and get payment for doing so can submit claims under the RDEC system.

You are a small or medium-sized enterprise if :

• Less than 500 Employees
• Revenues no greater than €100m
• Gross assets no greater than €86m

B. RDEC (Research and Development Expenditure Credit)

The Finance Act of 2013 set up the Research and Development Expenditure Credit (RDEC) system. It gives a tax credit that can be used to lower the amount of corporation tax owed or, if a company doesn't owe any corporation tax, it can be turned into cash. Under this system, a claim must be made within two years of the end of the financial period to which it refers.
Benefit Taxable credit worth 12% of eligible spending and 13% starting April 1, 2020.
Companies that have no CT responsibility will get a cash payment from RDEC. The due credit is limited to the company's PAYE/NIC liabilities for employees who worked in qualified activities during the accounting period.

• A large company is one that is not an SME.
• Large companies and SMEs that have been subcontracted to do research and development (R&D) or that are supported by grants.
• Large companies can claim expenses that other large companies have subcontracted to them.

C. RDA (Research and Development Allowances)

Companies can also get money back when they spend money on R&D-related capital expenses.

The plus side

The RDA plan lets you write off all your capital expenses in the year you paid for them. This can make a big difference in cash flow compared to other capital allowances, which give relief over much longer times (or when the right depreciation rules are used).

Important characteristics

• Available for both big and small businesses
• Wide range of cost areas that count.