R&D

R&D

R&D TAX RELIEF: Could your company qualify?

 

Overview

A potential extra corporation tax benefit for companies undertaking “qualifying R&D activity”

Two schemes: SME or Large Company Scheme (RDEC). SME scheme more favourable. Company deemed “large” if exceed turnover/employees’ thresholds but also if certain grants are received or for SMEs who have been subcontracted to do R&D work by a large company.

SME scheme provides a generous enhanced corporation tax deduction (currently a further 130% of eligible costs can be deducted from profits), or a cash credit option from HMRC.

The cash credit option is currently 14.5% of the total “enhanced eligible expenditure” depending on your exact circumstances and loss position etc.

From 1 April 2020 the RDEC scheme gives a “taxable credit” in the profit and loss account, based on 13% (12% before 1 April 2020) of eligible expenditure. Can be used to discharge tax liability or generate a cash credit.

Not just for the “obvious” research companies. Any company could potentially qualify on a project basis.

Key rules

The company must be doing something that advances knowledge and capability in an area of science or technology generally, not just the company’s interest. Needs to be more than just innovative.

Need a reasonable cost base for a claim to be worthwhile - mainly employee payroll costs and/or external subcontractors.

Important to have a good supporting narrative explaining the aim of the R&D activity, setting out details of the uncertainties faced and how overcome etc.

Typically, we help to guide you on the criteria, you provide the technical detail, we review and submit.

Need to be able to justify R&D activity continues as opposed to product development in later periods.

Backstop claim date is currently 2 years from company year end.

A “PAYE cap” is expected from April 2021, which may limit the cash credit available from HMRC.

(This is based on legislation currently in force and is not to be construed as formal tax advice).

RS have considerable experience of making R&D claims within its team. We specialise in helping owner managers achieve the right structure for their business, no matter what route they decide to take. For more articles on business tax see here. Or book a free consultation with our tax director Jon Miles. Or call Jon on 01225 325580 or email JM@richardsonswift.co.uk


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"The company must be doing something that advances knowledge and capability in an area of science or technology generally, not just the company’s interest."

Jon Miles

Director