As we enter a period of relative stability for Research and Development (R&D) tax relief after significant changes, it’s crucial to separate fact from fiction. Let’s clarify some of the common misconceptions and about the current state of R&D tax credits…

The Background…

The government has implemented changes to the R&D tax relief schemes in recent years, aiming to streamline the process, reduce fraud, and ensure the system remains effective in promoting innovation. These changes have led to some confusion among businesses about both eligibility and the claiming process.

Myth 1 – RDEC and SME schemes are no longer available

Fact: For accounting periods beginning before 1 April 2024, both the Research and Development Expenditure Credit (RDEC) and SME relief schemes are still in operation.

The merger of these schemes will only take effect for accounting periods starting on or after 1 April 2024. Until then, claims should be prepared under the existing schemes. It’s important to note that many businesses may have accounting periods that straddle this date, requiring careful consideration of which rules apply.

Myth 2 – All SMEs can access Additional Reliefs

Fact: This is currently true but is set to change.

For accounting periods starting before 1 April 2024, SMEs with eligible projects can still claim an additional deduction of 86%, resulting in a total deduction of 186%. Loss-making companies can claim a 10% payable credit, or 14.5% if they meet the R&D intensity threshold.

However, under the merged scheme starting from 1 April 2024, only R&D intensive, loss-making businesses will be eligible for the Enhanced R&D Intensive Support (ERIS) scheme. SMEs that do not allocate at least 30% of their expenditure to R&D will claim under the merged credit scheme.

Myth 3 – Claims require details for every project

Fact: The level of detail required depends on the number of projects in the claim.

For claims involving 1-3 projects, details must be provided for all projects. However, for claims with more projects:

– 4-9 projects: Details for 3 or more projects accounting for at least half of the qualifying expenditure.

– 10 or more projects: Details for the 10 projects with the highest share of qualifying expenditure.

Myth 4 – R&D Tax Credits are only for large companies or specific industries

Fact: R&D tax credits are available to companies of all sizes across various sectors.

Many businesses mistakenly believe that R&D tax credits are only for large corporations or specific industries like pharmaceuticals or technology. In reality, any company undertaking projects to advance science or technology in their field could be eligible, regardless of size or sector.

Myth 5 – Failed projects are not eligible for R&D Tax Credits

Fact: The outcome of the R&D project does not affect eligibility.

Successful or not, all R&D projects and their associated costs can form part of a tax credit claim. The focus is on the process of innovation and problem-solving, not the end result.

Conclusion…

Understanding the current landscape of R&D tax credits is crucial for businesses to take full advantage of the available benefits. As the schemes continue to evolve, staying informed about the latest changes and requirements is essential.

If you’re unsure about your eligibility or have questions about the R&D tax credit process, please get in touch. We can help you work out the best way forward.