29/11/2011
In today's autumn statement, Chancellor George Osborne announced the government's Innovation Strategy to be detailed in it's forthcoming publication, Innovation and Research strategy.
The key announcement was the introduction of an ‘above the line’ tax credit in 2013 to encourage research and development (R&D) activity by larger companies. This would effectively be a credit against the company’s corporation tax bill rather than an enhanced deduction.
This proposal moves from the current superdeduction to a system which reduces the company’s final tax liability rather than its taxable profits.
The advantage of this is that it deliver a better incentive effect for an assumed little additional cost. The R&D incentive is currently reflected in the taxation line in most company accounts, so it is very often the case that “ownership” of the R&D tax claim sits within the finance or tax department and it is not possible for an R&D team to record the R&D benefit in the results for which they are responsible. This inability to book the R&D incentive within the R&D team can result in it being disregarded in investment calculations.
To be able to account for the credit ‘above the line’ it would have to be ‘payable’. In other words, if a company did not have sufficient corporation tax payable to offset against the above the line credit, then it would either have to be able to offset the credit against other taxes or could ‘cash in’ the credit for a payable sum. This would give companies a fair degree of confidence about when the benefit of the credit would be received and how much it would be worth, allowing them to book it to the R&D cost centre in their accounts.
Currently, large loss-making companies have little incentive to claim the relief if they do not expect to become profitable in the near future and we believe that the cost of the scheme will increase significantly as a result of this.
The Government has advised that it will consult on the detail at Budget 2012 and will ensure that SME R&D incentives are not reduced as a result of this change.
This e-mail address is being protected from spambots. You need JavaScript enabled to view it. or call us on 020 3004 9243 now to see how we can help you claim
If you are developing hardware or software, ranging from FPGAs to low-level OS development to business applications, then your work may be eligible for R&D tax relief.
Often there is technological uncertainty around which algorithms, protocols, and standards to use for developing an application and this is a key element in supporting an R&D claim.
We have successfully helped high-tech companies claim millions of pounds of benefit, and we provide 3 levels of help and support.
- Free information on this web site - there are many free help articles available if you would like to learn more about the scheme or if you need help in making a claim.
- We provide training packs for companies that want to prepare their own R&D claim and would like the many hundreds of pages of legislation and HMRC guidance summarised in a practical guide with worked examples.
- We provide full assistance for companies wanting to make an R&D claim by providing help on a no-win no-fee basis. We ensure that your R&D claim is maximised, that your claim is submitted with expert documentation supporting its validity under the legislation and that any potential pitfalls with HMRC are avoided (for example over-claiming is likely to result in a 30% penalty from HMRC) Our 100% record of success and a host of real verifiable references available on request speak for themselves.
Budget 2011 contained a number of announcements on reforms to the R&D tax credits schemes.
The Government has published its response to the 2010 R&D tax credits consultation which closed on 22 February 2011.
The document also includes the Government’s recommendation for further consultation on R&D credits.
This consultation is part of the corporate tax reform process and seeks views on proposals to simplify the schemes and make them more effective. These include the relief for Qualifying Indirect Activities; how to give relief for subcontracted ‘routine’ activities; the removal of the PAYE/NICs cap and potential changes to the ‘going concern’ definition.
The consultation document can be found here
This e-mail address is being protected from spambots. You need JavaScript enabled to view it. today for more information on how we can help you with your R&D tax relief claim or call us now on 020 3004 9243.
R&D Tax relief is a valuable benefit to many organisations but while it conjures up images of men in white lab-coats, it is not often realised that design and implementation of environmental solutions- with labs comprising engineers working with mud and soil- can often qualify for this relief.
The reality today is that many companies developing environmental solutions cannot simply use off-the-shelf techno
logy and have to experiment in real-world environments to determine, for example, optimal water levels, growth mediums, minimise wastage and maximise water use.
The laboratory in many situations can comprise large outdoor testbeds, and there are a number of areas where we have successfully helped companies claim for solutions they have developed or integrated, including for grey water systems, hydroponics, irrigation solutions, more efficient drainage and green walls.
Additionally, as experimentation in this area can be quite labour-intensive there is usually a broad cost base that can qualify.
UK Budget 2011: Rise in UK R&D Tax Relief - The Winners and Losers
George Osborne announced today that from 1st April 2011 the small companies Research and Development Tax Credit will rise to 200% – and from 1st April 2012 it will rise again to 225%.
In combination with a reduction in the rates of corporation tax, the revised benefits for companies performing R&D are shown below with SMEs benefits rising fractionally to an expected 25% of R&D expenditure from 1st April 2012 while large company benefit will drop at that time to 7.5%.
Additionally, from April 2012, the rule limiting a company’s payable R&D tax credit to the amount of PAYE and national insurance contributions (NICs) it pays will abolished.This will be of significant benefit to many startups who currently do not have enough NIC and PAYE to receive the R&D credit
Furthermore, the current £10,000 minimum expenditure condition will be abolished for all companies.
Changes to the SME scheme will be subject to EU approval and thus there is no confirmed effective date yet.
Changes will also be made to the rules governing the provision of relief for work done by subcontractors under the large company scheme.
HMRC have indicated that when the 200% enhanced deduction rate takes effect, the rate at which losses can surrendered will be reduced initially from 14% to 12.5% and then to a lower figure when the rate becomes 225%.
This means that the cash benefit to SMEs will remain broadly the same at 25% despite the increased deductions.
The new benefit rates are shown below:
| Benefit |
Today's 175% R&D Rate |
From 1st April 2011 200% R&D Rate |
From 1st April 2012 225% R&D Rate |
| Loss-making SME (Current cashback at 14%) | 24.5% | ||
| Loss-making SME (2011 cashback at 12.5%) | 25% | ||
| Loss-making SME (2012 cashback at assumed 10%) | 25% | ||
| SME 21% Tax-payer | 15.75% | ||
| SME 20% Tax-payer | 20% | 25% | |
| SME 28% Tax-payer | 21% | ||
| SME 26% Tax-payer (2011) | 26% | ||
| SME 25% Tax-payer (2012) |
31.25% |
Large Companies will also see a change in the R&D tax relief benefit as a result of the reduction in UK Corporation Tax
| Main Rate of Corporation Tax | Date | Benefit of 130% R&D Tax Relief Rate |
| 28% | Current | 8.4% |
| 26% | 1st April 2011 Onwards | 7.8% |
| 25% | 1st April 2012 | 7.5% |
