R&D Tax Incentive, Scaleups

R&D Tax Relief: Australia and the UK Compared

R&D Tax Relief

Although both Australia’s R&D Tax Incentive and the UK’s R&D tax relief schemes are based on Canada’s scheme, there are key differences between them.

In order to claim the R&D Tax Incentive in Australia, companies must register every year, and can only claim R&D offsets after registration. In the UK however, registration is not required as a similar request for R&D relief is just included directly in the company’s corporation tax return.

The definition of what constitutes R&D is different between the two countries.

Claiming R&D tax relief is more restricted in Australia.

To start with Australia’s definition of R&D is much more rigid. It requires a specific hypotheses, a process from hypotheses to conclusion and must be for activities whose outcome can only be determined by applying that systematic, scientific process. The UK’s definition simply involves actions which resolve a scientific or technological uncertainty where a solution is in doubt and cannot be readily available by a competent professional.

UK R&D expenditure can be claimed independent of location.

Australia restricts claims for R&D activity to those undertaken in Australia – only exceptions is where the talent could not be found in Australia (accompanied by a long advance finding process).

The UK has no such restrictions, so long as the research is ultimately used by UK Company employees.

R&D audit processes can be less rigorous in the UK.

Claims for R&D tax relief in Australia can be audited and reviewed by staff to ensure they qualify as R&D and that supporting documentation is held. A review is to often determine whether activities are experimental, have occured and that the right amounts have been claimed. In the UK, claims are only reviewed by the tax inspector staff, whose knowledge is limited mostly to whether the R&D is justified for tax purposes.

No minimum spend for UK R&D.

While Australia has a AUD$20,000 minimum spend on R&D to claim offsets, the UK has no minimum spend requirement.

Australian R&D Tax Incentives is substantially higher than the UK R&D Relief.

In terms of relief, Australia permits a refundable tax offset of 43.5% for companies turning over less than AUD$20m. Any company exceeding that amount receives a rate of 38.5%. The UK permits an additional deduction by SME’s against taxable profits of 130% of qualifying expenditure. Companies can surrender a loss and receive cash at 14.5%. Large companies can claim 8.8% of qualifying expenditure under the Research and Development Expenditure Credit scheme.

The definition of what constitutes R&D is different between the two countries.

There are common situations where UK R&D tax relief is chosen over Australia. These include where the company is not incorporated in or conducts business via a permanent establishment in Australia, where research is not conducted in Australia and doesn’t meet statutory requirements, where the company turnover is greater than AUD$20m or where the company is loss making.

However, it is important to recognise the Australian R&D Tax Incentive ofters a substantially amount for the same R&D spend, which is noted in the additional requirements.

Fullstack assists a number of tech businesses with Australian – UK situations and work in conjunction with our UK partners to help tailor your international R&D grants strategy in line with best practice.

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