What is R & D Tax Relief?
The UK Government’s R & D strategy encourages innovative companies who are contributing to the UK’s export of technology. European Union member countries set a goal of increasing R&D investment intensity to 3 per cent of GDP by 2010 in the Lisbon Agenda of 2000. Such targets are not limited to Europe or the OECD with China committing to a R&D intensity target of 2.5 per cent of GDP by 2020. The 2010 Dyson Report aims for the UK to be a leading EU exporter of high tech goods and services. The UK’S R & D policy has both a fiscal drive and a range of grants and subsidies for innovators of all sizes, from the small company to the R & D performer in a complex worldwide group. Tax Insight is able to help with this choice and assist innovative companies with value added supportive corporate tax strategy.
UK R & D Tax Relief
There are two schemes. The 2000 Finance Act introduced the UK R & D tax credit scheme for SME companies spending a minimum of £25,000. This was supplemented on 01 04 2002, with the ‘Large Company’ scheme.
The definitions for UK R & D are broad enough to permit claims from any business sector carrying out eligible work. The term ‘R & D’ is based on the Statement of Standard Accounting Practice [SSAP 13], which is then narrowed for tax purposes by the BIS Guidelines of both 2000 and 2004 and tax legislation. R & D for tax purposes takes place when a project seeks to achieve an advance in science or technology…..Click link below to read more
- Pure research
- Applied research and
- Experimental (product or system) Development
To claim tax relief, project work must exhibit experimental activity; a common starting point is the thought that a solution may not even exist……..Click here for details of the BIS Guidelines
An SME can deduct 225% of R & D project costs as a tax relief. Loss making companies can surrender R & D losses for cash of up to 25% of direct R & D costs.
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A Large company is a concern that is not an SME.
From 01 April 2013, there are two R & D schemes open to Large companies. The Legacy CTA 2009 Scheme enables Large companies to claim up to 130% of R & D project costs as a tax relief. The new ‘R & D Expenditure Credit’ enables loss making Large companies to claim an ‘Above the Line’ repayable credit of 10% from 01 April 2013. The credit is taxable. Read more
Recent R & D Claims
R & D relief can be found in a wide range of development scenarios. If you are engaged in experimental product or system development; if you are reviewing cost or ‘green’ efficiencies in the productive process; if you are investing in quality or bespoke design on a scientific basis; you may be eligible….Read more
HMRC has recently agreed these R & D claims:
- An IT design company engaged to upgrade NHS record systems
- A software company engaged in replacing paper medical records with tablet style PDA’s for use by
- A brewer engaging upon ‘reduced sugar’ lager production
- A food manufacturer engaging in gluten – free, allergy and ‘diet’ confectionery product development
- A retailer developing interactive logistics software across EEA countries to improve stock and order logistics
- A retailer developing discreet security tags for high value stock
- An engineering company designing bespoke lighting and audio systems in television centres
- A digital marketing company improving multimedia IT communication levels
- A Games Developer designing multi-level social media interaction platforms
- A recruitment company developing a bespoke client / candidate communication platform
- An FSA Registered firm developing new analytical techniques to evaluate financial products and the market
- A printing company developing enhanced card to desk print works
- An actuarial firm designing enhanced statistical modelling and risk management systems
- An Engineering company designing improvements to temperature sensor technology for aircraft
- A furniture manufacturer investing in quality improvement and bespoke design
SME and Large Companies can claim relief for these costs:
- Staffing costs – Including some of the costs for people not directly employed by the Company
- Software and consumables – including project overheads
- Equipment and Intangible Expenditure
- Contributions to independent research
Useful to know:
- For every £100k of ‘eligible’ costs, an SME can claim an additional tax deduction of £125,000, this might
secure a tax saving of £ 25,000, tax–free
- Equipment used in an R & D project qualifies for special capital allowances of up to 100%; particularly useful
in 2012 and 2011, when AIA was capped at £50,000.
- Unlike many EU R & D tax regimes, a UK company can carry out R & D activities anywhere in the world.