Research and Development Tax Relief

in association with
Research and Development Tax Relief
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INTRODUCTION:
Scenario
We accept that, as accountants,
we won’t always be aware of the
latest technological developments,
so working closely with Teesside
University ensures we identify
all projects and all expenditure to
maximise your claim. Together our
respective experts will work with you
to prepare a detailed report ensuring
a seamless process.
You own an engineering business solving problems.
You are meeting with your accountants as your
financial statements have been prepared.
You discuss the tax charge. They explain the
reasons for the tax charge and you accept their
reasoning. You ask them what can be done to
reduce the tax bill next year and they mention the
usual capital allowances, pension contributions,
remuneration strategy, share schemes and so
on. They hesitate but also mention “Research and
Development” tax reliefs for advances in “Science
and Technology.”
they imagine would qualify. Unfortunately, this
prejudice could cost their company a significant
amount of money.
The quality of the argument by the accountants, to
pursue a claim for R&D tax relief, clearly depends
upon the accountants knowledge.
It may be that the accountants have dismissed a
claim before even speaking to you and if they do
ask the question, they will make a note that you
don’t think that you qualify, if you suggest that
you don’t. They’ll then mention that they will see
you in six months, if you’re lucky.
How are we different?
Questions
When you hear the phrase “Research and
Development” which part of the expression do you
focus on?
When you hear the phrase “Science and
Technology” which part of the expression do you
focus on?
Our experience
Undoubtedly many clients focus on “research” and
“science” and picture a laboratory full of scientists
working on the latest ‘wonder’ drug rather than
their own company. This leads them to dismiss
a claim for research and development (R&D)
tax reliefs as they don’t carry out the work that
Luckily, we will explain that “it’s not just about
the lab coats” and we focus on explaining the
meaning behind R&D, the tax reliefs available,
what legitimate planning can be done to increase
reliefs, why the Government is keen for companies
to claim the reliefs, the types of project that will
qualify and so on.
We can also back up our client as we along with
other Kreston International member firms have
saved clients over £7m in tax by making
R&D tax relief claims.
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What is Research
& Development?
Research and Development (R&D) can be
basically defined for tax relief purposes as:
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Seeking an advance in science OR
technology.
Activities undertaken which aim to achieve
the advance by resolving scientific OR
technological uncertainties. These activities
do not have to be successful.
An advance in science or technology can be
defined as:
•
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An advance in the overall knowledge OR
capability including adaptation from another
field.
If a particular advance has been made but details
are not publically available, if for example it is a
trade secret, then work to achieve the advance
can still be an advance that qualifies as R&D for
tax purposes. It could therefore be the case that
two rival companies have developed virtually the
same product independently of each other but
both qualify for R&D tax relief.
If you are developing an idea in
scientific or technological fields,
then R&D tax credits can help
to fund the project
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In 2012/13, manufacturing
companies claimed almost
£500m of R&D relief
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Why is the Government
promoting R&D tax relief
and is there a time limit?
R&D tax relief was introduced many years ago but
the current Government is heavily promoting the
relief.
You only have a two year window to make a claim
and you could be in a position to reclaim some tax
that has already been paid.
Some commentators believe it is because it
wishes to reward innovation which bring jobs and
growth to the UK economy.
For instance, if your year end is 30 September,
then you have until 30 September 2015 to make
a claim for the year to 30 September 2013. This
could mean that some of the tax paid on 1 July
2014 could be reclaimed.
It is not known how long the relief will continue to
be available but any removal of the relief would be
extremely unpopular. However, you should make
a claim as soon as possible just in case the worst
comes to the worst.
The key is to call us today to ensure that a claim is
made before the deadline.
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How is the relief given?
Depending upon the size and profitability of your
company, the R&D relief is given in one of the
following ways:
1.
2.
3.
Under the Small and Medium Enterprise (SME) scheme.
Under the Large company scheme.
Under the “Above the Line” regime.
Under both the SME and Large schemes, the
allowable R&D costs (see page 11) are uplifted by
a further 130% for the SME scheme, or 30% for the
Large scheme. The uplifted relief is then given via
the company tax return as if the company’s actual
expenditure on R&D were 230% or 130% of the
actual cost, respectively.
However, if a SME company makes a loss (either
before or after the R&D relief is accounted for), it
could surrender this loss to HMRC in return for a
refundable tax credit. There is no similar provision
for a Large company, which can only carry the
loss forward against future profits or back against
the previous years’ profits, if appropriate.
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The Above the Line (ATL) scheme was introduced
in April 2013 for large companies only. This
enables large companies to claim a form of
refund for R&D expenditure where a loss is made.
Effectively, the company receives a taxable
credit of 11% of the expenditure on R&D from HM
Revenue & Customs, however this is subject to a
notional tax charge.
At the moment, it is a choice for large companies
to choose whether to use ATL or the Large
company scheme, although ATL will become
compulsory in a few years.
If you are unsure whether you fall into the SME or
Large scheme, you can find more information on
page 11. There is also an example of an SME claim
on page 12.
The %’s mentioned on this page apply to
expenditure post 1 April 2015. Some %’s were
lower prior to 1 April 2015.
Clive Owen LLP work closely with Teesside
University to ensure we identify all projects and
all expenditure to maximise your claim.
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Nearly 6,000 claims were made in
2012/13 by manufacturing and
engineering companies
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What type of company
are we?
To determine the type of company, you need to
consider the turnover of the business, the balance
sheet value and the number of employees. This
will include other group or associated companies,
regardless of their location.
A SME for R&D purposes is a company which:
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What costs can be claimed?
Are there any other
considerations?
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In addition, if the company receives grant income
for R&D projects, it may be considered to be large
even where it initially appears to be a SME.
Has less than 500 employees and;
An annual turnover not exceeding €100m or
A balance sheet value not exceeding €86m.
The costs on which the uplifted R&D relief can be
claimed include:
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If the company cannot meet these conditions,
then it will be regarded as a Large company for
R&D purposes.
Employee wages and employer national
insurance (but not benefits in kind).
Employers pension contributions.
Consumable materials used in the R&D
process.
Utility costs – water, gas, oil and electricity.
Computer software costs.
Subcontracted labour costs.
In addition, 100% capital allowances may be
available on plant and machinery used in the R&D
process.
It is important to note that dividends do not form
part of the uplifted expenditure allowable for
R&D – therefore if the company directors are
also shareholders, they should consider their
remuneration strategy as they may be better off
by taking a salary rather than dividends.
It is also important to review any grants that the
company may have received for R&D projects as
these may restrict the reliefs available. It could be
that the company may be better off not receiving
a grant if this affects the amount of R&D tax
relief. The company also needs to consider how
it accounts for R&D expenditure. If the company
capitalises the expenditure, then it will affect the
tax relief available.
If you are able to obtain a patent over the product,
then further tax relief may be available under the
patent box regime.
Finally, it is important to remember that this
relief is only available to limited companies.
Therefore you may wish to consider your
trading vehicle, if you are not operating
via a limited company.
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Example
Fictional Vacuum Cleaners Limited have identified
the need for a new home cleaning machine and
have spent £1m on wages, consumables, heat
and light when developing the product.
After speaking to our R&D experts, we agree that
the product was a technological advance and that
scientific uncertainties were overcome.
The company qualifies as a SME under the rules
and has a turnover of £2.9m with costs of £1.4m,
leaving a profit of £1.5m.
The additional R&D deduction is 130% x £1m =
£1.3m
The tax positions of the SME with and without the
R&D claim are:
Without R&D
Claim (£)
With R&D
Claim (£)
Turnover
2,900,000
2,900,000
Costs
1,400,000
1,400,000
Profit
1,500,000
1,500,000
R&D reduction
0
1,300,000
Taxable Profits
1,500,000
200,000
Tax
300,000
40,000
The R&D claim has therefore saved £260,000 in tax.
What’s the latest?
The latest statistics by HM Revenue & Customs,
show that R&D claims are on the rise, but also
importantly that many different industries are
claiming the relief.
However, it is clear that companies based in the
North East and Yorkshire are the lowest claimants
in England, which seems unusual given that the
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North East in particular has been and is still in
some areas a manufacturing hotbed of innovation.
It is our view that R&D reliefs are dismissed too
easily by companies and their accountants be
that through misconception, lack of knowledge or
insufficient promotion.
We will work closely with
your team to understand
the R&D work undertaken
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Our experts have helped many
companies to make R&D claims.
We await your call.
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Why Clive Owen LLP?
We are one of the leading promoters of R&D tax
relief in the North.
technical team to prepare the report to send to HM
Revenue & Customs.
We have extensive experience in preparing R&D
reports for submission to HMRC and dealing with
any HMRC queries into the R&D claim.
In addition, we do not need to disturb your
relationship with your current accountants as
we can work alongside your existing advisers by
preparing a R&D report to submit to HMRC whilst
advising the current advisers about the claim to
be made.
Our experts will visit your premises for an holistic
overview of your business and work with your
Why Teesside University?
Teesside University can field a variety of technical
experts covering a broad spectrum of subjects
ranging from engineering, process, chemical,
healthcare and food to software, digital, forensics
and computing.
This wide and easily accessible pool of knowledge
can add real benefit to your R&D claim by ensuring
that it is independently verified and checked to
highlight where value and innovation is occurring
in your organisation and how this can be extracted
and demonstrated to allow maximum eligible
claims to be confidently submitted.
As a University they can provide an impartial
assessment of what constitutes ‘Research and
Development’ and can effectively test the claims
against HMRC criteria.
They can provide independent, credible experts to
deliver impartial assessments and add real value
to claims.
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Contact: Nicola Bellerby
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E-mail: [email protected]
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