Country Profiles

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United Kingdom

The UK offers SMEs an 86% deduction from taxable profits or loss-making SMEs a cash credit of up to 10% and LCs a 20% expenditure credit (R&DEC) for large companies. These rates changed significantly with effect from April 2023.

Technical justification is not required by law, but a document stating the nature of R&D activities is highly advised.

Eligible costs have to fit within prescribed cost categories.

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UK Small and Medium Enterprises (SME)

UK Large Companies (LC)

86% tax deduction
(186% Super Deduction)
Cash Credit Research and Development Expenditure Credit (R&DEC)
Benefit Overview

This scheme applies only to profit making SMEs. The net benefit is 21.5% of qualifying R&D tax. If an SME is a loss making entity, they are able to surrender losses for a 10% cash credit.
The net benefit is seen as a 18.6% benefit on every pound spent on eligible R&D projects.
Large companies in the UK are eligible to claim on the RDEC scheme for a 20% expenditure credit. This is an above the line credit.
Eligible Claim Period

The UK utilises a retrospective scheme concerning their research and development tax benefits. This includes the ability to claim back for eligible R&D expenditures from 3 years in the past.

Historical Background

Maturity of Regime: 2000

Maturity of Regime: 2002 (RDEC was introduced in April 2013 and has since replaced the historical LC regime)

Regimes for both SMEs and LCs have become ever more generous since their launch.

Application Process

R&D tax claims are reviewed in the UK by HMRC, a non-ministerial department of the UK Government, who are not technical experts.
Applicants are not required, but advised to provide a full financial and a full technical justification for the claim in the form of a report.
Benefits are received on average 28 days after submitting the claim for SMEs and around 3-6 months for large companies.

Regulating Body Practices

Research and Development Tax Incentives are issued by Her Majesty Revenue & Customs (HMRC).
All claims for R&D tax benefits are to be submitted to the HMRC in the tax return (CT600) for review. Technical and Financial supporting documentation are not required with an application, but they are strongly advised. In the case of an inquiry, these documents are helpful in defending costs related to R&D projects.

Claim Processing Time: There is no official timetable. The benefit could be immediate if it is a reduction of tax owed and inserted as an original submission in the tax return (CT600).
If it were a credit of tax paid, the tax authority aims for 29 days.
Claim Processing Time:
The tax authority aims for 29 days.
Claim Processing Time: No official timetable. Approximately 6 -12 weeks
Elligible Costs

  1. R&D Staff
  2. Subcontractors
  3. Externally provided workers (EPWs)
  4. Consumed or transformed materials not sold for monies or monies’ worth.
  5. Software
Data and Cloud computing costs will be included from April 2023
  1. R&D Staff
  2. Externally provided workers (EPWs)
  3. Consumed or transformed materials
  4. Software
  5. Independent research

Note: LCs can only claim up to the total cost of the employees’ full NIC and PAYE costs in the financial period. This is the full NIC and PAYE cost, not just the apportioned cost.

Data and Cloud computing costs will be included from April 2023
Issues to Consider

HMRC’s R&D inspectors are not technical experts and may have trouble reading and understanding projects submitted to them which may lead to an enquiry to ensure that the technical nature of the work meets the definition of R&D.