Research and Development Tax Relief
In his Budget 2014 speech, Chancellor George Osborne announced, “If Britain isn’t leading the world in science and technology and engineering, then we are condemning our country to fall behind.” He recognised that investment in cutting edge Science, Technology and Engineering was vital in making the UK more competitive internationally.
He went on to revise the rate of the R&D tax credits for loss making small businesses from 11% to 14.5%.
So how does the R&D tax relief work?
HMRC will allow an extra 125% (30% for large companies) of identified costs to be written off against taxable profits. Therefore, if R&D expenditure of £100,000 is identified, HMRC will allow £225,000 to be included in the tax computation, giving an extra £125,000 of cost to be offset against taxable profits. The current corporation tax rate is circa 20% which equates to a £25,000 reduction in a tax liability.
However, loss making companies are not excluded from the benefits and tax credits can be claimed on the losses enhanced by the R&D expenditure instead of carrying the losses forward to offset against future profits.
To give you an example, if the R&D expenditure is £100,000, HMRC will pretend that a company has spent £225,000 as described above. If a company is loss making, HMRC will allow a company to surrender those £225,000 of losses for a cash payment of up to 14.5% which equates to £32,625.
Essentially, loss making companies can claim up to 32.63p in every pound spent on qualifying R&D expenditure.
So what expenditure does it relate to?
Identifying the costs associated with the R&D activity is often seen as a laborious and minimally beneficial process when the cost of gathering the information is compared to the tax benefit. In reality, HMRC encourage a pragmatic approach to gathering cost information. The expenditures allowed as part of the claim fall into 4 key categories: staff costs, consumables, subcontract labour and heat and power cost.
R&D tax relief and tax credits are still among the most under-claimed tax incentives currently available.
The main reason behind the widespread failure of companies to take advantage of the reliefs is the misconception of what actually constitutes ‘research and development’ for the purposes of the HMRC legislation. Most company finance directors mistakenly believe that unless a scientist operating in a secret laboratory and dressed in a white lab coat is employed by the company, then R&D is not taking place. Indeed, a cursory glance at the current R&D legislation would undoubtedly suggest that this is a reasonable assumption to make.
R&D activity does not have to be ‘blue sky’ innovation, nor does it have to consist of creating new technologies. Instead, appreciable improvements to existing technology which would be regarded by those considered competent in the field (company employees, for example) to be ‘difficult’, are perfectly acceptable where the R&D legislation is concerned.
Therefore, the potential scope for successful R&D claims may well be greater than you think. Below is a list of the business sectors within which we are already making successful claims.
- Aerospace & Defence
- Alarms, CCTV
- Automobiles & Parts
- Banking and Finance
- Chemicals, Paints and Adhesives
- Clothing, textiles & fabrics
- Construction & Building Materials
- Electronic & Electrical
- Engineering & Machinery
- Food and Drink Producers and Processors
- Games Software Industry
- Household Goods & Textiles
- IT Hardware
- Insurance Brokers (software development)
- Land Remediation
- Media & Entertainment
- Personal Care, Cosmetics & Household
- Pharmaceuticals & Biotechnology
- Printing & Packaging
- Property & Construction
- Software Development
- Travel Industry
- Waste Recycling
- Water Treatment
How far can a company go back?
Retrospective claims can be made for the past two accounting periods which can often result in a significant repayment of corporation tax, or if a company is loss making, a claim for R&D tax credits. It is therefore important to discover if a claim can be made as soon as possible so as not to miss out on any time limits.
Our Programme of Support
Nunn Hayward LLP work in partnership with R&D specialist advisors, HowarthLynch, providing the best advice relating to this niche area of opportunity. From a brief initial telephone conversation, we can very quickly identify definitively whether a company is eligible to claim this valuable relief.
Working together, our pragmatic and practical approach enables us to maximise a claim and submit the necessary paperwork in a HMRC friendly format. The process is perceived as challenging, however, our tailored approach combined with our expertise in assisting many different types of businesses, in all industries, ensures seamless liaison with the tax authorities. Our 100% track record is a direct result of our robust reporting model, developed over the last 15 years and which is continually refined as a result of our close working relationship with Inspectors of Taxes.
This model underpins our ability to provide exactly what HMRC requires, query free. HMRC benefits are often received within as little as 4 weeks from submission of the claims.
THE NEXT STEP:
Call our offices and speak to one of our taxation advisors who will explain the simple procedure that will follow when you make a claim.
Telephone 01753 888211
Nunn Hayward LLP