In the tax industry, the terms R&D tax relief and R&D tax credits are both used by tax advisors and businesses. These terms broadly relate to the same tax incentive scheme and have become synonymous over the years. However, there is a difference.
For clarity, there are two forms of R&D tax relief, one for SME’s and one for large companies. The R&D relief scheme for SME’s is designed to reduce their Corporation Tax liability by deducting their R&D expenditure, enhanced by 130%, from their taxable profit calculation. However, loss-making companies have no profits to ‘relieve’, which is where the term ‘R&D tax credits’ comes in. Where the R&D expenditure deduction creates or increases a loss, the company can opt to surrender some or all of the loss for a tax credit (worth 14.5% of loss) which is received as a cash payment, or they can bring the losses forward to relieve future Corporation Tax liabilities.
The R&D tax relief scheme for large companies is called a Research and Development Expenditure Credit (RDEC). This is a tax credit currently worth 13% of the qualifying R&D expenditure which is claimed ‘above the line’.
These are simplistic definitions and there are other considerations not detailed above. We invite you to contact us to talk to one of our tax experts about your entitlement to R&D tax relief.