Category: Accounting

10 ways to pay less VAT

3D Vat button block cube text

Here are my top 10 ways to pay less VAT

1 Choose the best VAT Scheme for your business

Standard VAT Scheme – on this scheme the VAT is based on tax points from invoices

Flat Rate Scheme – try our calculator

Flat Rate Calculator 2

VAT Cash Accounting Scheme – if your turnover is below £1.35m you can account for VAT on a Cash basis, this is particularly helpful if your customers pay you on slower terms than you pay your suppliers

Annual Accounting Scheme for VAT – if your turnover is below £1.35m you could join the Annual Scheme and complete one return for the year but you make either 9 interim payments or 3 quarterly interim payments

Retail VAT Schemes – These are specific schemes aimed at mainly at shops and help to overcome the issues of mixed vat rate goods

VAT Margin Scheme – The margin scheme relates to second hand goods and accounts for VAT on the margin, for example on the sale of cars

2 Claim Pre-registration VAT

When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:

  • 4 years for goods you still have, or that were used to make other goods you still have
  • 6 months for services

Be careful not to over claim – see this blog for details http://stevejbicknell.com/2015/06/24/preregistration-vat-confusion/

3 Property Investors might benefit from a Development Company

Property Development is a trade, where as Property Investment isn’t – renting out a residential property is a VAT exempt supply.

If you are planning significant building work, setting up a Development Company or using a building contractor might save VAT.

Assuming you employ a builder…

The VAT Rules are in VAT Notice 708 Buildings & Construction

Your builder may be able to charge you VAT at the reduced rate of 5 per cent if you are converting premises into:

  • a ‘single household dwelling’
  • a different number of ‘single household dwellings’
  • a ‘multiple occupancy dwelling’, such as bed-sits, or
  • premises intended for use solely for a ‘relevant residential purpose’

As your builder will be VAT registered, they reclaim the VAT they are charged and then charge you VAT at 5%.

If your business is property rental and you do the work yourself, you can’t take advantage of the 5% rate.

If your Development Company is VAT registered you can reclaim all the VAT.

4 Do you need to charge VAT on Intercompany Charges

There are situations where one company is VAT registered and other related companies are either partially exempt or not registered for VAT, so in these circumstances not charging VAT is an advantage.

The following are not Taxable supplies for VAT:

Common Directors – Notice 700/34 (May 2012)

Joint Employment – Notice 700/34 (May 2012)

Paying a Bill on behalf of an associated business

Insurance

5 Use VAT Groups for Business Acquisition Costs

Basically HMRC disallow Input VAT relating to Investments.

The most well known example of this was when BAA purchased Airport Development Investments Limited in June 2006, the decision was upheld by the Court of Appeal in February 2013.

The BAA VAT group sought to recover the VAT (£6.7m) incurred on the acquisition costs but recovery was refused by HMRC on the basis that they considered ADIL had not made onward taxable supplies, had not demonstrated any intention to make taxable supplies and was not a member of the VAT group at the time costs were incurred.

BAA used an SPV (Ferrovial) to purchase ADIL but did not bring the SPV into the BAA VAT Group until September 2006, 3 months after the acquisition.

The lessons to learn from this are:

  1. Once you have successfully made the acquisition join a VAT Group immediately and make it clear in correspondence that the SPV intends to join the VAT Group at the earliest opportunity
  2. Consider not using an SPV
  3. Buy the Assets instead of the Shares
  4. Show that the SPV will make taxable management charges
  5. Consider the scope of the advisors work, HMRC may disallow advice focussed on passively holding shares

6 How Hotels save VAT

Here are some VAT examples for Hotels – HMRC Reference:Notice 709/3 (October 2011) :

The Long Stay Rule

If a guest stays in your establishment for a continuous period of more than 28 days, then from the 29th day of the stay you should charge VAT only on that part of the payment that is not for accommodation.

VAT Exempt Meeting Rooms and Refreshments

Hiring a room for a meeting, or letting of shops and display cases are generally exempt, but you may choose to standard-rate them by opting to tax, see Notice 742A Opting to tax land and buildings.

VAT on Deposits

Most deposits serve as advanced payments, and you must account for VAT in the return period in which you receive the payment. If you have to refund a deposit, you can reclaim any VAT you have accounted for in your next return.

Normally, if you make a cancellation charge to a guest who cancels a booking, VAT is not due, because it is compensation.

7 VAT on Pool Cars

When you buy a car you generally can’t reclaim the VAT. There are some exceptions – for example, when the car is used mainly as one of the following:

  • a taxi
  • for driving instruction
  • for self-drive hire

If you lease a car for business purposes you’ll normally be able to reclaim 50 per cent of the VAT you pay. But you can reclaim 100 per cent of the VAT if the car is used exclusively for a business purpose.

8 Use a Tronc for Tips

Tips are outside the scope of VAT when genuinely freely given. This is so regardless of whether:

• the customer requires the amount to be included on the bill
• payment is made by cheque or credit/debit card
• or not the amount is passed to employees.

Restaurant service charges are part of the consideration for the underlying supply of the meals if customers are required to pay them and are therefore
standard rated.

If customers have a genuine option as to whether to pay the service charges, it is accepted that they are not consideration (even if the amounts appear on the invoice) and therefore fall outside the scope of VAT.

Further information is available from: Notices 700 The VAT guide and 709/1 Catering and takeaway food

9 Get your TOGC right – Transfer of a Going Concern

Normally the sale of the assets of a VAT registered or VAT registerable business will be subject to VAT at the appropriate rate. A transfer of a business as a going concern for VAT purposes (TOGC) however is the sale of a business including assets which must be treated as a matter of law, as ‘neither a supply of goods nor a supply of services’ by virtue of meeting certain conditions. Where the sale meets the conditions then the supply is outside the scope of VAT and therefore VAT is not chargeable.

It is important to be aware that the TOGC rules are mandatory and not optional. So it is important to establish from the outset whether the sale is or is not a TOGC.

The main conditions are:

  • the assets must be sold as part of the transfer of a ‘business’ as a ‘going concern’
  • the assets are to be used by the purchaser with the intention of carrying on the same kind of ‘business’ as the seller (but not necessarily identical)
  • where the seller is a taxable person, the purchaser must be a taxable person already or become one as the result of the transfer
  • in respect of land which would be standard rated if it were supplied, the purchaser must notify HMRC that he has opted to tax the land by the relevant date, and must notify the seller that their option has not been disapplied by the same date
  • where only part of the ‘business’ is sold it must be capable of operating separately
  • there must not be a series of immediately consecutive transfers of ‘business’

The TOGC rules are compulsory. You cannot choose to ‘opt out’. So, it is very important that you establish from the outset whether the business is being sold as a TOGC. Incorrect treatment could result in corrective action by HMRC which may attract a penalty and or interest.

10 Choose the best time to register for VAT

You may decide to voluntarily register to reclaim VAT you have paid out to set up you business or you might decide to wait till you have to register to gain a competitive advantage.

You must register for VAT if:

  • your VAT taxable turnover is more than £82,000 (the ‘threshold’) in a 12 month period
  • you receive goods in the UK from the EU worth more than £82,000
  • you expect to go over the threshold in a single 30 day period

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Should Landlords pay Class 2 NI?

To Let

Until April 2015 HMRC had been pursuing Landlords who owned multiple properties. HMRC tried to claim up to 6 years Class 2 NI from Landlords saying that owning multiple property investments was a business and therefore Class 2 NI was payable.

HMRC said…

The nature of property letting requires some activity to maintain the investment, but that is not enough to make it a business. For example, being a landlord normally involves:

  • undertaking or arranging for external and internal repairs
  • preparing the property between lets
  • advertising for tenants and arranging tenancy agreements
  • generally maintaining common areas in multi-occupancy properties; or
  • collecting rents.

In order for a property owner to be a self-employed earner, their property management activities must extend beyond those generally associated with being a landlord (which include, but are not limited to, the above).

For example, ownership of multiple properties, actively looking to acquire further properties to let, and the letting of property being the property owner’s main occupation could be pointers towards there being a business for NICs purposes.

NIM23800 – Special cases – property letting: business for Class 2 National Insurance Contributions

A Recent Case Rashid v Garcia [2002] UKSC SpC 348 over turned this view and since April 2015 Class 2 NI has only been due where Class 4 NI is payable.

Rental income isn’t subject to Class 4 NI.

However, Landlords operating as business can volunteer to pay Class 2 NI.

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Beware of letting your accounts become a shambles

Unhappy office worker on the phone, isolated on white

It’s not uncommon for Directors and Senior Employees to get behind with their expense claims and paperwork, they are busy people trying to build their businesses and sometimes the paperwork gets put to one side.

But lets consider the recent HMRC case against the Directors of RSL (NorthEast) Ltd. Mr White was Director of RSL and he had a company credit card which he used for business and personal expenses, he travelled extensively on company business. Unfortunately RSL became insolvent, so HMRC assessed Mr White on credit card expenses as a benefit in kind.

Mr White appealed on the basis that he had lent the company large amounts of his own money and any credit card expenses were just a reimbursement.

HMRC argued…

  • “Section 203(2) ITEPA does not grant any right to retrospectively make good a benefit. Income tax is an annual tax, and the value of the benefit depends upon what is made good in that tax year.”
  • “Any “rewriting” [to reflect the money reimbursed to RSL] would have a retrospective effect on the Company accounts.” HMRC implied that this would not be allowed.

HMRC won the case, but mainly because the accounts were in a terrible shambles!

What can we learn from this?

  1. Keep good records, don’t put off doing your accounts!
  2. If you do get behind you do a have a ‘reasonable time to make good’ as noted in HMRC’s manuals http://www.hmrc.gov.uk/manuals/eimanual/EIM21121.htm

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10 ways to pay less income tax

Pay Packet And Banknotes

Income Tax is a tax you pay on your income. You don’t have to pay tax on all types of income.

You pay tax on things like:

  • money you earn from employment
  • profits you make if you’re self-employed – including from services you sell through websites or apps
  • some state benefits
  • most pensions, including state pensions, company and personal pensions and retirement annuities
  • interest on savings and pensioner bonds
  • rental income (unless you’re a live-in landlord and get £4,250 (£7,500 from April 2016) or less)
  • benefits you get from your job
  • income from a trust
  • dividends from company shares

So how can you pay less income tax?

Here are 10 suggestions…

  1. Pension

When you pay into a pension you get income tax relief on your contributions .

Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)

40% Tax Rate 20% Tax Rate
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

Even when you consider:

  • Your money is locked up till you are 55
  • You pay tax when you take money out of the pension
  • You can get 25% out of the pension tax free

The difference in growth is massive

If you do salary sacrifice you can increase the tax effect by saving national insurance too.

2. ISA

Individual Savings Accounts have been around for a few years and very soon the Help to Buy ISA will be launched

Help to Buy ISA

Top 10 facts and rules…

  1. Its only available to ‘First Time Buyers’
  2. ‘First Time Buyers’ can only have one Help to Buy ISA with one provider
  3. You can pay in £1,000 when you open the account and then save a maximum of £200 per month
  4. The maximum government bonus is £3,000 (but you can lower amounts of bonus if you have less than £12,000)
  5. The scheme will run for 4 years from the date it opens (Autumn 2015)
  6. Couples can have a Help to Buy ISA each which means if they don’t want to wait 4 years could save £12,000 in 25 months where as a single saver would need 55 months
  7. Unlike ISA’s where you open one per year, the Help to Buy ISA will continue for 4 years
  8. You can withdraw funds but if its not to buy a home then you won’t get the bonus
  9. More than 100,000 homes have now been bought with government backed schemes
  10. You will be able to get them at banks and building societies

3. Salary Sacrifice

Salary Sacrifice is a very tax efficient way to give your employees benefits and the most popular benefits are Pensions and Childcare. I wrote a blog back in 2011 which explained how it can save 45.8% in tax and NI

HMRC decided on 9th April 2013 that it was time to “clarify”  in their Manuals what are successful and unsuccessful salary sacrifice schemes and have added some further guidance. Their Staff are instructed not to approve schemes (Employment Income Manual EIM42772)….

You (HMRC) may get requests for advice:

  • on how to set up a salary sacrifice arrangement, or
  • on whether draft documentation will achieve a successful salary sacrifice.

You (HMRC) should not comment on either of these areas. Salary sacrifice is a matter of employment law, not tax law. The nature of an employee’s contract of employment is a matter for the employer and employee.

The specific updates are:

EIM42750 – Salary Sacrifice – updated – this contains the examples of schemes

EIM42777 – Contractual arrangements – this has interesting comments on childcare and pensions

4. Employment Expenses

As an employee you can claim tax relief for expenses incurred in doing your job, for example business mileage, cycling on business, hotels, meals, business phone calls, in fact anything as long as its business related

If your claim is less than £2500 you can make your claim using Form P87 http://www.hmrc.gov.uk/forms/p87.pdf if its more than £2500 you will need to complete a Self Assessment Return (you need to phone HMRC to request a Self Assessment Return – contact details below), if you know your UTR number you can register and file your Self Assessment Return on line.

5. Dividends

When you take dividends has never been more critical due to changes in the Summer Budget 2015, so if you have distributable reserves you might want to take more dividends this tax year, try the Dividend Calculator above to see how much difference it could make.

Dividend Calculator 2

6. Tax break for Couples

A new tax break as launched this week from 6 April 2015, which will be eligible to more than 4 million married couples and 15,000 civil partnerships.

The Allowance means a spouse or civil partner who doesn’t pay tax – therefore is not earning at all or is earning below the basic rate threshold (£10,600) – can transfer up to £1,060 of their personal tax-free allowance to a spouse or civil partner – as long as the recipient of the transfer doesn’t pay more than the basic rate of income tax.

7. Tax Free Benefits

Getting tax free benefits will save you lots of tax, here some ideas…

  1. Pensions – Up to £40k can be paid in to you pension scheme by your employer (2015/16)  and you can use carry forward to pay in even more
  2. Childcare – Up to £55 per week but check the rules to makesure your childcare complies (HMRC Leaflet IR115) – these rules are changing soon.
  3. Mobile Phone – One per employee
  4. Lunch – Tax Free Lunch Blog
  5. Cycle Schemes – Cycle to Work Blog
  6. Fitness – Fitness Blog
  7. Parties and Gifts – Christmas Blog
  8. Parking – Parking Blog
  9. Business Mileage Allowance – 45p for the first 10,000 miles then 25p
  10. Long Service Award – A bit restrictive as you need 20 years service, the tax free amount is £50 x the number of years
  11. Eye Tests and Spectacles – The Eye Test must be needed under the Health & Safety at Work Act
  12. Suggestion Schemes – Suggestion Scheme Blog
  13. Insurance such and Death in Service and Income Protection – Medical Insurance Blog
  14. Travel Expenses – Travel Blog
  15. Working From Home – Working from Home Blog

8. Earn less than £100k

Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £121,200 or above.

9. Green Company Car

A calculator is available here: http://www.hmrc.gov.uk/calcs/cars.htm and rates are shown in the table below for zero emission vehicles and some of the lower CO2 vehicles.

BIK CO2

10. Check your P800

The P800’s are likely to contain errors because:

  1. Large amounts of data are manually input
  2. Estimates especially for Bank Interest and Investment Income

So check the following carefully:

  1. P60 – you get this at the end of each tax year
  2. P45 – you get this when you leave a job
  3. PAYE Coding Notice
  4. P11D Expenses and benefits
  5. P9D Expenses payments and income from which tax cannot be deducted
  6. Bank and Building society statements
  7. Pension Tax Deductions

Its expected that around 3 million people will be asked to pay more tax and around 2 million people will have overpaid.

 

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How do you switch over to Sage One?

An overworked office worker

So you’ve made the decision, its time to move to Cloud Accounting and you’ve choosen Sage One, what do you need to do to move your accounts to Sage One?

You need to start by deciding the best time to move, it could be your Year End or the end of VAT Quarter, but its likely to be on the 1st of a month.

Get some help, why not find a Sage One accountant and ask them to help you set up your Sage One, they might even offer you a deal and include your other accounting and tax needs.

Then you need to create your Contacts – Customers & Suppliers.

Then you enter opening balances – for example unpaid supplier invoices.

You also need to set up your Bank Feeds

http://uk.sageone.com/bank-feeds/
http://help.sageone.com/en_uk/accounts/extra-bank-feeds.html

To set up bank feeds

1. Banking > click the required bank account.
2. Manage Bank Account > Connect to Bank.

You enter your closing Trial Balance from your old accounting system on the last day of the month before your Sage One start date.

Keep the records and prints from your old accounting system for reference.

Then you are ready to get started, its all very easy and straightforward, nothing to worry about.

infographic-a-business-without-limits

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How do you calculate holiday pay for occasional workers?

hh-why-britain-needs-a-holiday-infographic

Almost all workers are legally entitled to 5.6 weeks’ paid holiday per year (known as statutory leave entitlement or annual leave). An employer can include bank holidays as part of statutory annual leave.

Self-employed workers aren’t entitled to annual leave.

But what if your workers work irregular hours, or are part time, or are casual occasional workers, how can you work out how much paid holiday they are entitled to, well actually its not as hard as you think, its based on an accrual of 12.7% per hour worked, here is a spreadsheet to help you calculate it.

Holiday Pay Calc

Calculating average hourly rate

To calculate average hourly rate, only the hours worked and how much was paid for them should be counted. Take the average rate over the last 12 weeks. If no pay was paid in any week, count back a further week, so that the rate is based on 12 weeks in which pay was paid.

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10 ways to pay less Corporation Tax

Businessman With Gold Bar

Corporation is currently 20%, by 2017 it will 19% and by 2020 it will be 18%, which is excellent news but you could do more to pay even less.

Here are my top 10 ways to pay less

R&D Tax Credits

Many businesses are still missing out on claiming for Research and Development Tax Credits.

Since 1 April 2015, the tax relief on allowable R&D costs for SME’s is 230% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.

R&D

Pensions

Pensions are now more flexible than ever.

Net Relevant Earnings rules don’t restrict employers from paying in the maximum per year of £40,000 and you can use Carry Forward to pay in even more.

You could use a SSAS or SIPP to help you buy Business Premises

Pension payments are an allowable business expense.

Annual Investment Allowance

Buying equipment, even if its on finance is a great way to reduce your corporation tax bill, the 100% AIA can be used on the date you buy the asset.

Currently the Annual Investment Allowance is £500,000 and this will reduce to £200,000 in January 2016.

Green cars

Low Emission Cars attract 100% Capital Allowances and they are cheaper to run and tax!

Low Emmission

Repay your Directors Loan Account

If you have an overdrawn Directors Loan Account at the end of your year and it isn’t repaid with 9 months that you will get an extra tax charge of 25% on the balance, you can only reclaim this when the Directors Loan has been repaid.

Change your Year End

If you expect the next trading period to be a loss, why not extend your current period to 18 months and offset the 6 month loss against the 12 month profit?

You will have to pay the Corporation Tax on the first 12 months but sending in a 6 month return will enable you reclaim some of the tax back.

Claim Tax Free Benefits in Kind

There are many benefits which are tax free such as Childcare, Mobile Phones, Cycling, Business Mileage and many more, are you claiming as many as you can?

Inter Company Charges and Groups

Small businesses are exempt from Transfer Pricing Rules so they can charge each other fees.

A business is a ‘small’ enterprise if it has no more than 50 staff and either an annual turnover or balance sheet total of less than €10 million.

You might find it easier just to create a Group and claim Group Tax Relief

Accrue a Bonus

If you accrue a bonus you will have to pay it within 9 months of the end of the year, but it can help to reduce your corportion tax bill.

Home Office

Have a home office and charge your company rent

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How do you get SEIS/EIS Advanced Approval?

SEIS_and_EIS_compared

The Enterprise Investment Scheme (EIS) is designed to help smaller higher-risk trading companies to raise finance by offering a range of tax reliefs to investors who purchase new shares in those companies.

The Seed Enterprise Investment Scheme (SEIS) is designed to help small, early-stage companies raise equity finance by offering tax reliefs to individual investors who purchase new shares in those companies. It complements the existing Enterprise Investment Scheme (EIS) which offers tax reliefs to investors in higher-risk small companies. SEIS is intended to recognise the particular difficulties which very early stage companies face in attracting investment, by offering tax relief at a higher rate.

If you are looking for Crowdfunding, investors will be looking for your business to have Advance Assurance from HMRC for SEIS or EIS.

In order to get advance assurance your will need..

SEIS EIS

 

The key rules for SEIS:

  1. Maximum of 25 Employees
  2. Maximum of £200k Gross Assets
  3. Maximum SEIS £150k
  4. Any trade being carried on by the company at the date of issue of the relevant shares, must be less than 2 years old at that date
  5. The company must not be controlled by another company or another company and any person connected with it, and there must be no arrangements in place for it to be controlled by another company

 

You can get advance assurance for HMRC by clicking here

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10 things a new business must do to pay less tax

Entrepreneur startup business model

A record breaking 581,173 businesses were registered with Companies House in 2014 showing an accelerated increase on previous years with 526,447 and 484,224 recorded in 2013 and 2012 respectively.

In 2014 the UK had the fastest growth in Self Employed workers in Western Europe!

So what should start ups do to pay less tax?

  1. Choose the right business structure for your business – most businesses start out as sole traders but once they start making profits convert to limited companies, this is because sole traders pay more tax than company structuresComparison Calculator
  2. Choose the best VAT Scheme you might be better off with Flat Rate or Cash AccountingFlat Rate Calculator 2
  3. Get an Accountant and use accounting software – the penalties and fines for getting your tax wrong can be huge!
  4. Employ your family – Children can legally work from the age of 13 which means they can perform activities which are relevant and justifiable in your business. Each member of your family has a tax free allowance of £10,600 (2015/16).
  5. Avoid earning more than £100,000 – For all ages, the personal allowance reduces where taxable income is above £100,000 – by £1 for every £2 of income above this limit, so that the personal allowance is lost once taxable income exceeds £121,200 (2015/16).
  6. Pay into your Pension – Currently you can pay £40,000 per year into to your pension
  7. Pay Dividends – Generally directors will take a low directors fee and the rest of their income in Dividends
  8. Claim Expenses – You may well have an office at home and use your car for business
  9. Use Company Assets – Sometime the Benefit in Kind Tax works in your favour, so you could get the business to buy the assets for you to use for example a commercial vehicle or computer equipment
  10. Buy Assets – You should be able to buy assets with a loan or on credit but you will get the tax relief as soon as you take ownership

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Why aren’t you claiming R&D Tax Credits?

Business people group.

R&D Relief is a Corporation Tax relief that may reduce your company or organisation’s tax bill.

Alternatively, if your company or organisation is small or medium-sized, you may be able to choose to receive a tax credit instead, by way of a cash sum paid by HM Revenue and Customs (HMRC)

But your company or organisation can only claim R&D Relief if it’s liable for Corporation Tax.

The Small and Medium-sized Enterprise Scheme

This scheme has higher rates of relief. Since 1 April 2015, the tax relief on allowable R&D costs is 230% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £130 on top of the £100 spent. It also includes a payable credit in some circumstances.

The Large Company Scheme

If your company isn’t small or medium-sized, then you can only claim under the Large Company Scheme.

Since 1 April 2008, the tax relief on allowable R&D costs is 130% – that is, for each £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £30 on top of the £100 spent. If instead there’s an allowable trading loss for the period, this can be increased by 30% of the qualifying R&D costs – £30 for each £100 spent. This loss can be carried forwards or back in the normal way.

Government Statistics show a steady growth in claims

R&D

Construction Examples of R&D

  • The investigation into the removal of contamination from sites, including land remediation
  • Advancements in structural techniques that aid construction relating to  unusual ground conditions
  • The innovative use of green or sustainable methods and technology
  • Development or adaptation of tools to improve efficiency
  • The use of new or unique materials, e.g. recycled products
  • Improvement on existing construction methods or development of new ideas to solve ongoing issues related to the site environment or project specifications
  • Innovative architectural design

IT Systems Examples of R&D

  • The design, construction and testing of systems, devices or processes e.g. new hardware or software components, digital interface and control systems
  • Integration of legacy and new systems e.g. following a corporate merger or acquisition, the adoption of an Enterprise Architecture or externally with partners in joint ventures
  • Advances in network management and operational tools, development of wired or wireless technologies, designing mobile and interactive services, evolution of new generation network switching and control systems
  • Data intensive activities e.g. the collection, storage and analysis, distribution and retrieval. Defining or working with new or emerging data models and metadata standards, integration with third party content

These examples and more are shown on the Cost Care Website

There are also examples by Industry on the Alma CG website

http://www.taxdonut.co.uk/sites/default/files/RD-Tax-Credits-Infographic.jpg

http://www.taxdonut.co.uk/blog/2014/12/beginners-guide-claiming-rd-tax-credits-infographic

These are the key questions that you will be asked when requesting an R&D Tax Credit from HMRC:

  1. How was it decided that R&D had taken place
  2. A description of the scientific & technological advance sought
  3. The uncertainties involved
  4. How and when the uncertainties were resolved
  5. Why the knowledge being sought was not readily deducible by a competent professional
  6. Were any grants, subsidies or contributions received for the project within the claim
  7. Who owns the Intellectual Property of the products resulting from the R&D
  8. Was the R&D carried out for others ie clients, this could mean your claim is rejected

This HMRC Spreadsheet will help you calculate your Claim

R&D Google

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