Lumo: Specialist R&D Tax Advisors

This is all we do. Every single day.

At Lumo, we’re committed to simplifying the intricate process of working with R&D tax reliefs for small to medium-sized enterprises (SMEs), ensuring you reap the maximum benefits, regardless of your industry.

Understanding R&D Tax Relief

R&D tax relief, a crucial component of the UK government’s support framework since 2000, serves as a powerful incentive for companies engaged in innovative activities.

It operates as a Corporation Tax (CT) relief, either reducing your company’s tax liability or resulting in a payable tax credit under specific circumstances.

The introduction of the Research and Development Expenditure Credit (RDEC) scheme in 2013 extended the benefits to companies with no CT liability, providing them with cash payments or reductions in tax or other duties owed. It’s worth noting that the terms of the RDEC have become more generous recently, despite some people perceiving them as simply getting worse.

Determining Company Size for Tax Relief

The eligibility for SME R&D tax relief hinges on several factors, including:

• Staff Headcount: Your company must employ fewer than 500 individuals.
• Financial Metrics: Your turnover should not exceed €100 million, or your balance sheet total should be less than €86 million.

If your accounts are prepared in sterling, these figures must be converted to euros using the exchange rate for the balance sheet date.

Additional Eligibility Criteria

In addition to size constraints, your company must meet several other eligibility criteria, including:

• Your company must fall under the UK Corporation Tax jurisdiction.
• It must be a going concern, actively engaged in business operations.
• Your company must exclusively operate within the sector to which the qualifying R&D expenditure relates.

The R&D projects in question must not have been contracted to your company, and the expenditure incurred should be classified as revenue in nature, with no grants or subsidies contributing to it.

Project Eligibility Criteria

HMRC has stringent guidelines regarding the eligibility of R&D projects for tax relief. To qualify, a project must:

• The project must create or modify a product, process, or service.
• It should resolve scientific or technological uncertainties.
• The project should advance beyond existing practices within the relevant sector, contributing to broader knowledge or capability.

Estimating Tax Relief

Understanding the potential tax relief is crucial for determining the feasibility of claiming R&D credits. The nature of relief depends on your company’s financial status:

If your company is experiencing losses, you have several options, including carrying losses back or forward, or surrendering them for a cash credit.

Prior to 2023, non-‘R&D intensive’ SMEs received an effective credit of 33.35%. However, changes introduced in the 2022 and 2023 Autumn Statements reduced this figure to 18.6% and subsequently to 16.2%.

Beginning in the 2024/25 tax year, ‘R&D Intensive’ businesses benefit from a grace period, maintaining higher relief rates for one year, simplifying accounting for fluctuating R&D intensity.

Ensuring Compliance

HMRC’s heightened scrutiny underscores the importance of meticulous compliance when claiming R&D tax relief. Even minor errors can lead to significant consequences.

Therefore, seeking professional assistance is paramount to navigating the complex world of R&D tax relief effectively.

How Can We Help?

At Lumo, we’re more than just advisors; we’re your partners in innovation. We’re here to help demystify R&D tax relief and empower your business to thrive. Contact us today for personalised guidance tailored to your needs.