Can LLPs Claim R&D Tax Credits?

Can LLPs Claim R&D Tax Credits?

LLPs cannot claim R&D Tax Credits directly. However, they may be able to access this generous scheme if they are in an R&D partnership. Here’s what you need to know. 

LLPs cannot claim R&D Tax Credits, otherwise known as R&D Tax Relief.

Only companies that pay UK Corporation tax are eligible for R&D Tax Credits.

As LLPs are exempt from Corporation tax, you can’t receive tax credits directly. However, there is one exception.

LLPs can claim R&D Tax Credits if they're in an R&D partnership

You can reclaim some of your R&D development costs in tax credits under one condition: the R&D was conducted in partnership with a company that does pay corporation tax.

In that case, your partner qualifies for the R&D Tax Credits scheme and you could receive some of the tax windfall depending on how you’ve structured your collaboration.

Exactly how much you receive usually depends on how you divide up the profits generated by the partnership.

Let's look at an example

It’s a little complicated, so let’s use an example.

Let’s say that you developed a new app in partnership with an SME. The project costs £100,000.

The app generates revenues of £400,000 – a profit of £300K.

Your partner invested slightly more in the app’s development, so you agree on splitting the profits 60:40.

You receive £120,000, while your partner takes £180,000.

Your partner then pays 19% corporation tax on their slice of the profits. £34,200 goes to HMRC.

More good news.

In developing the app you conducted R&D that meets HMRC’s eligibility criteria for tax credits.

Your partner successfully applies for tax credits via their Corporation tax return, and recoups 25% of your combined R&D costs in tax credits: £25,000.

Just as with the profits, you split the tax windfall 60:40.

That means you get another £10,000 on top of the profits you’ve already taken.

Looking to claim R&D Tax Credits as an LLP?

In summary, you can make some money back on your R&D through tax credits, but it’s a complicated process.

If you’re unsure about whether your LLP qualifies for tax credits or how to maximise your payout, be sure to give us a call

GrantTree’s team of R&D Tax Credits experts will be happy to help!