As you know, it can be unclear as to which capital allowances, credits and reliefs are available to sole traders and some partnerships compared with limited companies.
R&D tax is an area of confusion, which you may need to help your clients clear up in terms of eligibility to claim.
The headline is that sole traders and some partnerships are not eligible to claim R&D tax credits because they are credits against Corporation Tax, for which sole traders and some partnerships are not liable.
HMRC therefore does not permit claims from these businesses, but certain other small businesses can make a claim.
Who can claim?
While sole traders and businesses not liable for Corporation Tax cannot claim R&D tax credits, that does not mean they are the reserve of large businesses.
Limited companies – i.e. those liable for Corporation Tax – can claim R&D tax credits on eligible projects and expenditure whatever their size.
Additionally, small and medium-sized businesses (SMEs) can claim SME relief on qualifying R&D expenditure, allowing them access to an enhanced 186 per cent deduction and a payable credit if they are loss-making, for accounting periods beginning before 1 April 2024.
For periods beginning after this date, SMEs will have to claim a payable credit under the merged scheme – offering them a credit of 20 per cent and delivering a total benefit, after tax, of up to 16.2 per cent.
This is, of course, unless they are loss-making and R&D-intensive, in which case they will have access to the existing 130 per cent deduction as well as a credit of up to 14.5 per cent of surrenderable loss.
In all, R&D tax credits are designed to reduce the burden of Corporation Tax on R&D activity that offers a wider benefit to the field in which the company operates.
Although this means that sole traders and some partnerships are not eligible, companies of all sizes are able to make a claim on qualifying expenditure to support their innovations.
Contact us for advice on submitting claims for smaller business clients.
