UK Fact-File Part 5:
Small Business Incentive Programs

5.3 UK R&D Tax Credits

Corporation Tax relief or tax credits are available for qualifying research and development (R&D) expenditure for businesses in England and Wales. Smaller companies can opt for the tax credit instead, payable by HMRC as a cash sum. However, a business can only claim R&D relief if it is liable for Corporation Tax, as an incorporated entity.

A company must also meet the definition of a SME (Small or Medium-sized Enterprise) as laid down by HMRC to qualify for relief under the SME Scheme. An SME is defined for these purposes as a company with less than 500 employees and either annual turnover of EUR100m or a balance sheet not exceeding EUR86m.

There are two R&D relief schemes, namely the SME Scheme for small and medium-sized businesses and the Large Company Scheme.

Under the SME Scheme, which is likely to be the scheme of most interest to micro-business, tax relief on R&D costs (those that qualify) is 175%. This means that for every GBP100 of R&D costs, the income base on which Corporation Tax is levied will be reduced by a further GBP75, in addition to the GBP100 already spent.

With the Large Company Scheme, tax relief on R&D costs is 130%. As with the SME Scheme, this has the effect of reducing the income base for Corporation Tax by GBP30 in addition to the GBP100 already spent. At least GBP10,000 per year must be spent on R&D costs to qualify for the scheme, putting it, as previously stated, out of the reach of smaller operations.

SMEs may also, however, qualify for a grant to help fund technological innovation in business.

There are four types of R&D investment project that might attract a grant:

• Micro development projects lasting a maximum of 12 months – a grant of up to GBP20,000 available to businesses with less than ten employees;
• Research projects over longer periods (six to 18 months) – a grant of up to GBP100,000 is available to businesses with less than 50 employees;
• Development projects that are more advanced and can take up to three years – a grant of up to GBP250,000 is available to businesses with less than 250 employees;
• Exceptional projects of greater importance to an industry can attract funding of up to GBP250,000.

This scheme has traditionally been administered by the nine regional development agencies in England, but these are being phased out by the Conservative-Liberal Democrat coalition government, and are to be replaced with Local Enterprise Partnerships, by March 2012 at the latest.

In Scotland business grants are awarded to SMEs and individuals by SMART:SCOTLAND. In Wales, the Welsh Assembly deals with business grants, and in Northern Ireland grants are administered by SMART grants.

Introductory Guides

Fact-File

Part 1: UK Business Formation for Individuals

Back to main UK page