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Research and Development (R&D) Tax Credits are a government incentive intended to promote R&D in the UK.
£1.8 billion of support has been claimed so far for 2016-17, up from £350 million in 2010. This supports the government’s aim of seeing UK spending on R&D increase from 1.69% of GDP in 2017 to reach 2.4% by 2027.
What is R&D?
The credits are designed to encourage companies to invest in R&D. In return, this is proposed to increase innovation and wealth creation in the economy. Companies can reduce their tax bill or claim payable cash credits. The scheme allows UK businesses to conduct R&D at a lower risk. The financial incentive can be the difference between a project being profitable, or even viable in the first place. It also reduces the risk of projects that are likely to fail or be unachievable to their full extent.
R&D for the purpose of tax takes places when a project seeks to achieve an advance in science of technology. A qualifying company will seek this through the resolution of scientific or technological uncertainties.
Introduced in 2000, the Research and Development (R&D) Tax Credit scheme is designed to encourage small and medium enterprises (SMEs) to invest in R&D. From April 2015, SMEs have been able to claim 230% on their qualifying R&D costs.
There are various principles which need to be respected.
Eligible R&D must be:
Eligible costs include staffing costs, consumable costs, software, subcontractors and research contributions.
A company is an SME for R&D Tax Relief purposes if their staff count is below 500 and either the turnover is less than €100 million or a balance sheet totalling less than €86 million.
It is estimated that the £3.5 billion given out via the scheme in 2016-17 has generated up to £24.9 billion in R&D expenditure.
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