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R&D Tax Credits: Patent Box And Property Embedded Fixtures And Fittings Allowances For Commercial Properties Are Leading Government Policy Aims For UK Firms.
It is little recognised and few know very much about these very valuable and available policies for British companies. I can say this on the basis of the latest statistics published recently showing the takeup of R&D Tax Credits. Although there is improvement, the scheme is still under used and sets the UK among the lower spenders on research and development. I will remind readers that this state of affairs is not down to Government policy in the matter: no, it is the failure of directors and companies to find out and make claims for the three areas of support I set out above.
The challenge remains: what to do about the reluctance of British companies to take advantage of that which is put there for their support? There is a body of support and expertise available to SMEs and LCs. This consists of companies willing and able to work with companies’ own accountants and to represent and interact fully with each of the seven Special R&D Units run by HMRC.
Infrastructure is in place, the schemes for takeup are in place and functioning: it is up to directors to contact us, or contact someone and find a way forward for their firms. They owe this to themselves and to their shareholders and clients.
How do you claim R&D Tax Credits?
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:
- How was it decided that R&D had taken place
- A description of the scientific & technological advance sought
- The uncertainties involved
- How and when the uncertainties were resolved
- Why the knowledge being sought was not readily deducible by a competent professional
- Were any grants, subsidies or contributions received for the project within the claim
- Who owns the Intellectual Property of the products resulting from the R&D
- 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.
http://www.youtube.com/watch?v=3Y2mkG_d7R8
steve@bicknells.net
Business Accountant 