• “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?”
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?
• External workers
• 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: email@example.com