Things you need to know about R&D Tax Credits…..

Laboratory Collage

Research and Development (R&D) tax relief (or credit) is a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized (SME) companies, provide a cash sum. It is based on the company’s expenditure on R&D.

For there to be R&D for the purpose of the tax relief, a company must be carrying on a project that seeks an advance in science or technology. It is necessary to be able to state what the intended advance is, and to show how, through the resolution of scientific or technological uncertainty, the project seeks to achieve this.

http://www.hmrc.gov.uk/manuals/cirdmanual/cird80150.htm

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

Amount of relief

For expenditure incurred up to and including 31 July 2008 SMEs can deduct 150% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24 for every £100 of actual R&D expenditure. For expenditure incurred on or after 1 August 2008 SMEs can deduct 175% in respect of their qualifying R&D expenditure and the payable tax credit can amount to £24.50 for every £100 of actual R&D expenditure. The rate is further increased from 1 April 2011 to 200%, and a payable credit of £25 for every £100 of spend.

Large companies can deduct 125% in respect of qualifying expenditure incurred up to and including 31 March 2008 and can deduct 130% thereafter.

Here is a template (originally created by HMRC but updated by me) to help you calculate the value of your claim it has references to relevant HMRC guidance.

The claim is made on your corporation tax return (CT600) if you discover that you should have made a claim in a prior year its not too late, follow this link to find out how to correct prior year returns http://www.hmrc.gov.uk/ct/managing/company-tax-return/amend.htm

Case Studies and Examples

Here are some excellent examples http://www.bis.gov.uk/files/file36112.pdf

It is possible to claim for software http://www.bis.gov.uk/files/file34845.pdf

Software could be tool to enable the R&D or a goal in its own right, but simply modifying existing software isn’t R&D. It has to follow the same rules as other R&D and be an advance in science and technology.

Construction companies have claimed R&D for developing new building systems and new building technologies.

R&D could be a new process rather than an invention.

It doesn’t have to have a patent but there could be advantages to having one, such as patent box tax relief.

steve@bicknells.net

200% Tax Relief for R&D, could your business claim it?

All companies spending at least £10,000 in their accounting year on qualifying R&D are entitled to claim a deduction when calculating their taxable profits of:

  • 175% of qualifying expenditure for SMEs in respect of expenditure incurred on or after 1 August 2008 rising to 200% from April 2011 and 225% from April 2012, subject to EU approval under the State aid rule

or

  • 130% of qualifying expenditure for larger companies until 31 March 2008

http://www.bis.gov.uk/policies/innovation/business-support/rd-tax-credits/about#6

Companies can claim R&D tax credits for their revenue expenditure on:

  • employing staff directly and actively engaged in carrying out R&D
  • paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D
  • consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D)
  • power, water, fuel and computer software used directly in carrying out R&D

Lots of businesses carry out R&D and never claim, so why not see if your R&D qualifies?

Steve@bicknells.net