R&D Tax Relief / Credits
Are you or companies you know of making the most of your/their R&D tax relief? Todd McCully of GGTC explains how you could be missing out.
Whilst we maintain our organic growth that has served us well over the years, we are now looking for opportunities to bring in more introducer's amongst our midst. In doing so we in turn pass on our success to the introducing party by way of a fee sharing arrangement that can be beneficial for both parties. this does not exclude accountants, as we encourage working relationships to remain the same and are always on the lookout to grow our ever expanding accounting partners base.
HMRC believes there are potentially over 150,000 SME's alone that could benefit from the scheme. However, the uptake to date remains relatively low, particularly in comparison to Europe. HMRC state that the average claim value, ie. the tax benefit or tax credit, is £40,000 per accounting period. It is also worth noting that an initial claim is able to take in to account two retrospective years, therefore potentially doubling the HMRC average claim value in the first claim cycle.
Companies incurring expenditure on qualifying Research and Development (R&D) are eligible to claim the tax benefits introduced in the UK to encourage scientific and technological development.
What is R&D?
R&D has a much wider definition than you might think and can cover areas such as:
• Work in science and technology (including software and engineering) to achieve an advance in knowledge
• Work to develop new products, or services incorporating an advance in science or technology.
• Work to solve technological uncertainties where the best approach is not known in advance, nor readily deducible by a competent technologist.
The work can qualify right up to the stage when you have a working prototype or you have a system or product that is ‘fit for purpose’.
The majority of companies we speak to that are eligible for an R&D tax claim do not even realise it!
• R&D Tax Relief is available at a ‘super deduction’ rate for companies which incur revenue expenditure on R&D. The rate of deduction for qualifying R&D expenditure is currently at 175% for SME’s which corresponds to a cash benefit of 15.75% of qualifying expenditure for an SME operating with the 21% Corporation Tax rate.
For large companies, the reliefs are less generous and currently are worth 8.4% of qualifying expenditure, based on a corporation tax rate of 28%.
What is an SME?
From 1 August 2008 an SME would need less than 500 employees. There is also a financial test based on assets or turnover. There are further rules that determine the status of an SME, but GGTC can help a claimant determine the company status if there is any doubt.
Typical qualifying R&D costs include staff costs, consumables (including water fuel and power), software licenses and subcontracting expenditure.
2011 Budget Changes
George Osborne announced that from 1st April 2011 the R&D tax relief rate for SME’s will rise from 175% to 200% – and from 1st April 2012 it will rise again to 225%! The large company scheme remains the same at 130%. But let’s not forget that this is in combination with a reduction in the rates of corporation tax. This means that the revised cash benefit for companies performing R&D with SME status will rise to around 25% of R&D expenditure from 1st April 2012 while large company benefit drops to 7.5%. So bad news for large companies.
Corporation Tax Changes
Legislation will be introduced in Finance Bill 2011 to reduce:
• The main rate of corporation tax to 26% for the financial year commencing 1 April 2011;
• The main rate of corporation tax to 25% for the financial year commencing 1 April 2012; and
• The small profits rate of corporation tax to 20% from the financial year commencing 1 April 2011. ( note that most of our target clients tend to fall into this bracket). We need to wait and see what comes out of the EU consultation and finer tuning of the detail by the government. The full detail of these changes is due to be released in the next two months.
GGTC were formed in 2006, although partners involved in the business have been associated with the R&D Tax Scheme since 2001. Whilst GGTC have partnerships with accountants, they are not an accountancy firm and therefore the relationship between the claimant and their accountant remains as before.
During this time we have developed an in depth knowledge of the R&D Tax Relief scheme and are able to define claim opportunities quickly and maximise claim potential.
By all mean please be in tocuh if you would like to learn more on how you or companies you know of could benefit.