Research & Development (R&D) remains a highly beneficial area for those companies carrying out qualifying work. Historically it has been an underused relief with HMRC and Government seeking ways to highlight the availability of the relief.
As part of this on-going initiative, HMRC have published a document on R&D designed to ‘Make R&D easier for small companies’. It does contain some useful summaries and case studies for those who are unfamiliar with the relief.
As a reminder, R&D tax relief is available to companies that are developing a product through an advance in science or technology by overcoming scientific or technological uncertainty.
For small to medium sized companies (SMEs), the relief takes two forms:
- Firstly, enhanced R&D tax relief – for every £1 of qualifying costs spent on R&D, the company receives a deduction in calculating their taxable profit for corporation tax purposes of £2.30.
- Secondly, for loss making companies up to 33% of the qualifying cost can be available as a tax refund.
The Research and Development Expenditure Credit (RDEC) scheme which pays a taxable credit of 11% of qualifying expenditure may also be relevant to SMEs, for example where they are carrying out work for larger companies.
HMRC’s new guide goes through some of the factors to consider in determining whether projects would qualify for R&D relief, but does highlight that the relief is not just for ‘white coat’ scientific research, but also for other “development work in design and engineering that involves overcoming difficult technological problems”.
It also includes case studies on certain areas, such as food, ICT and construction. The food case study for example notes that, “Creating an innovative chilled food container that provides a substantially longer shelf life than currently available, would […] qualify. The scientific or technological uncertainties to be addressed are in the interactions between the food, gas content and container to keep the food fresh for longer. By contrast, the work in dealing with authorities to comply with extended use-by date regulation would not qualify.”
Eaves and Co has dealt with a number of R&D claims and have a proven track record in completing successful claims and can offer assistance in all aspects of the claim process. If you would like to discuss how we can help, please get in touch.
Budget 2013 announced the introduction of a 10% ‘Above the Line’ credit for large company R&D activity.
The ‘Above the Line’ credit is designed to increase the visibility of large company R&D relief and provide greater cash-flow support to companies with no corporation tax liability.
Companies will be able to claim the ‘Above the Line’ tax credit for their qualifying expenditure incurred on or after 1 April 2013. The credit will be equal to 10% of the qualifying R&D expenditure. The credit will be fully payable, net of tax, to companies and will not be liable to Corporation Tax.
The ‘Above the Line’ credit scheme will initially be optional and companies will be required to elect to claim R&D relief under this scheme.
Companies that do not elect to claim the ‘Above the Line’ credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016.
The ‘Above the Line’ credit will become mandatory from 1 April 2016.
According to a recent study by Chantrey Vellacott DFK Accountants, only 17,000 out of 150,000 potentially qualifying companies that undertake research and development activities are making claims for R&D tax relief.
It is suggested that the low take up of R&D tax relief may be as a result of a misconception that R&D only takes place in laboratories, which means innovative work and problem-solving in many other industries, such as construction, logistics design engineering, manufacturing and new media, can be easily missed.
Companies that undertake qualifying R&D expenditure are eligible for an enhanced Corporation deduction equal to 225% of the R&D expenditure for SMEs and 130% for large companies.
If an SME makes a loss and incurs R&D expenditure in the year, it is possible to surrender some of the loss for tax credit payment equal to 11% of the lower of 225% of R & D expenditure and the loss.
Therefore these reliefs are extremely beneficial for the companies involved.
If you would like more information on R&D tax reliefs including details of what qualifies as R&D please contact a member of the Eaves & Co team.
The Budget announced some significant and beneficial changes to R&D Tax Credits:-
– The rate of credit available has been significantly increased
-More companies will be able to access credits as the lower spending threshold is removed
However, what is also important for innovative companies is the new “Patent Box”
This is a 10% rate of tax for companies after April 2013 on patents that are brought into use now
For more information call Eaves & Co Leeds, on 0113 2443502