The advantages of investing in R & D
- Credit: Archant
Tax Matters with Chris Annis
RESEARCH & DEVELOPMENT TAX INCENTIVE.
It is worth reminding ourselves of the existing Research and Development (R&D) tax incentive rules as this can be a very simple way of achieving significant tax savings for Companies.
For Small or Medium-sized Enterprise (SME) Companies, since 1 April 2012, the tax relief on allowable R&D costs is 225% that is, for each £100 of qualifying costs, your company has the profits on which Corporation Tax is paid, reduced by an additional £125 on top of the £100 spent. Effectively this increases a company’s Corporation Tax relief on such expenditure from 20% to 45%, and is hence a very generous HMRC incentive. Furthermore any “excess tax losses” created from such a claim can either be carried forward in the normal way for relief against future profits of the same trade, or “surrendered” for an cash rebate at a rate of 11%.
This incentive can have significant tax benefits to a qualifying company, so don’t miss out!
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WHICH R&D PROJECTS MIGHT QUALIFY FOR RELIEF?
HMRC state that your company can claim for R&D Relief if a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability.
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Furthermore, it must be related to your company trade - either an existing one, or one that you intend to start up based on the results of the R&D.
WHICH COSTS QUALIFY FOR R&D RELIEF?
If your company and the project(s) both meet the necessary conditions, then you can claim tax relief on what’s classed as revenue expenditure, typically the following:
Employee costs - that is, the costs of employing staff directly who are actively engaged in carrying out R&D itself. The staff must be employed under a contract of employment directly with your company cannot be consultants, agency workers, or staff/directors whose contracts of employment are with other companies.
Staff providers - paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D. The staff provider needs to contract with the individual whose services they supply.
Materials - consumable or transformable materials used directly in carrying out R&D. These are actual physical materials that are consumed in the R&D, and not things like telecommunication or data costs.
Utilities - power, water, fuel used directly in carrying out R&D
Software - computer software used directly in the R&D.
Please note the above does not constitute financial advice and LB Group cannot be held responsible for any errors or omissions. If you need help or advice please contact LB Group on 01473 359720 or email Ipswich@lbgroupltd.com.