Introductory quotes

 

•      “Research is what I’m doing when I don’t know what I’m doing”

Werner von Braun

 

•      “If we knew what it was we were doing, it would not be called research, would it?”

Albert Einstein

Definition of R & D

•      “Generally a project will be an R&D project if the project seeks, through the resolution of scientific or technological uncertainty, to achieve an advance in overall knowledge or capability in a field of science or technology, not a company’s own state of knowledge or capability alone.”

•      HM Revenue & Customs Corporate Intangibles Research & Development Manual CIRD80150

R & D tax regimes

•      Only available to limited companies, not sole trades or partnerships

•      Separate regimes for large companies and for small and medium-sized companies

•      This presentation focuses exclusively on the small and medium-sized company regime.

What are the rules for expenditure to qualify for R & D tax reliefs?

•      It used to be the case that the company incurring the expenditure had to own the intellectual property to which that expenditure related, but this is now no longer the case.

•      The expenditure must not be subsidised (for example by a research & development grant)

•      The expenditure must be revenue expenditure

•      The company must not be acting as a subcontractor

What must expenditure be on?

•      Staffing

•      External workers

•      Software

•      Consumable items

•      Sub-contracted R & D

What type of companies may be able to claim R & D reliefs

•      Games companies

•      Pharmaceutical companies

•      Engineering companies

•      Manufacturing companies

•      Software designers

•      Graphic designers

•      Web designers

•      And many others

What are the reliefs?

Enhancement of pre-trading expenditure

 

•             Treated as a trading loss relievable against other income and gains or future trading profits

•             225% of expenditure is allowable as a trading loss (175% pre 1.4.11 & 200% pre 1.4.12).

Enhancement of trading expenditure

•      225% (175% pre-1.4.11 & 200% pre 1.4.12) of actual expenditure allowable against trading profits

•      Can be particularly useful in creating a trading loss which can be carried back for a year

•      Otherwise offset against current year income or gains or future trading profits

 

R & D tax credits

•      Enhance expenditure to 225% of actual (175% pre-1.4.11 & 200% pre 1.4.12)

•      Surrender for a 12.5% cash tax credit (equivalent to 28.125% of actual expenditure). Was 14% pre 1.4.11 (24.5% equivalent)

•      Tax credit cannot exceed the company’s PAYE & national insurance liability for the accounting period of the claim, for periods prior to 1.4.12.

Summary & Conclusion

•      Valuable reliefs

•      Worth considering if one or more projects qualify

•      Not as good as an R & D grant, but can be claimed retrospectively, unlike grants

•      May change views on tax efficient remuneration structure

•      Worth incorporating sole trades or partnerships to claim reliefs?

•      So if you are engaged in R & D, or think you might be, contact Mark Simpson to discuss whether you may be entitled to these special tax reliefs:

 

•      Telephone   0161 886 8062

 

•      E-mail:  mark.simpson@sbnca.com

 

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