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As part of the government’s ongoing commitment to make the United Kingdom a centre for advancement, there are attractive tax relief schemes available for Research and Development.
R&D Relief has the impact of reducing the Corporation Tax liability for your business. For companies that qualify for the Small or Medium-sized Enterprise Scheme, you may be entitled to receive at tax credit payment from HM Revenue and Customs.
There are two schemes, the Small or Medium-sized Enterprise (SME) Scheme and the Large Company Scheme.
For the purposes of determining which scheme is applicable, an SME is defined as a company or organisation with fewer than 500 employees and either of the following:
It is important to consider these limits in relation to the total organisation. For instance, a company that met these conditions would not qualify if it is owned in full or in part by a larger business that fails these tests.
The SME scheme is not available if you have received subsidy or grant that is recognised as ‘state aid’ by the European Commission. In this case, the Large Company Scheme would apply.
Finally, there is an upper limit of €7.5 million on the total amount of relief available on any one R&D project.
Do not be deterred by the enormity of these numbers. R&D Relief is designed to help the entrepreneur working on their own to achieve an advance in overall knowledge or capability in a field of science or technology as much as a corporation. There is no minimum amount that you need to have spent to qualify. According to official statistics, the average relief is £46,000.
The Small and Medium-sized Enterprise Scheme offers a higher rate of relief. Currently, this is set at 225%. In other words every £100.00 of expenditure on qualifying costs has the impact of reducing the taxable profit of the business by £225.00. If the overall impact results in there being a loss, this can either be converted to a tax credit or carried forward to the following year.
Under the Large Company Scheme, the tax relief on allowable R&D costs is 130%. However, unlike the SME scheme, if the business makes a loss in the period, it can only be carried backwards or forwards in the normal manner.
In determining that your R&D project qualifies for either of these schemes, you would need to be satisfied you could demonstrate that it involved a scientific or technological advance.
The key in this evaluation is the advance rather than the product or the process. It is not sufficient for the product is commercially innovative if there is no advance that was not readily available or deducible by a competent professional working in the field.
On the other hand, these schemes are not just for new products. Developing an existing product or process to resolve technological uncertainty or to make a substantive improvement could also qualify for R&D relief.
Moreover, the R&D project does not have to have been a success to qualify so long as it can be established that the goal was to achieve a scientific or technological advance.
If you are content your R&D project qualifies, then you can claim tax relief on revenue expenditure in the areas outlined below:
In addition, under certain circumstances, a proportion of subcontracted R&D expenditure would qualify for R&D Relief.
Although capital expenditure is outside the scope of these R&D Relief schemes, there are other incentives available.
There are specific R&D capital allowances and mechanisms for claiming tax relief on R&D revenue expenditure that has been capitalised in your accounts.
For more general capital spend, the Annual Investment Allowance limit for plant and machinery expenditure has been temporarily increased to £500,000 until 31st December 2015. Thereafter, it will return to £25,000 per annum. This allowance enables qualifying capital costs to be fully expensed in the year of acquisition rather than being depreciated over time.
At CooperFaure, we are working with clients to ascertain when their projects qualify for R&D Relief and, if so, to ensure that all the qualifying costs are being claimed. More importantly, we liaise directly with HMRC to secure the tax relief.
If you would like to arrange an initial consultation that is free and without obligation to discuss your circumstances, please email us at welcome@cooperfaure.co.uk.
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