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Technical updates - Published 21st December 2015

Research & Development Tax Relief. How It Works? Who’s Eligible?

Menzies history of claims

For companies with accounting years ending in the 2012 financial year, the key facts in relation to claims submitted by Menzies are:

  • In excess of £16m of qualifying expenditure recorded under the SME scheme
  • In excess of £2m of qualifying expenditure recorded under the large scheme
  • In excess of £4.5m of corporation tax saved
  • In excess of £1.1m of tax credits recovered for loss making companies

 

Key facts & Benefits about R&D Tax Relief

  • Relief is only available to companies but the UK system is amongst the most advantageous tax relief in the world and applies widely to companies overcoming challenges or producing bespoke solutions.
  • Claims made under the SME scheme receive an additional deduction of 125% of the revenue expenditure incurred meaning that after tax relief the actual cost of £1,000 of qualifying expenditure is £550.
  • Claims under the large scheme receive an additional deduction of 30% of the qualifying expenditure incurred meaning a minimum tax saving of £6 per £100 of expenditure.
  • Claims can be made even where a company receives a grant or EU State Aid but only under the large scheme.
  • From April 2013 companies claiming under the large scheme (including work being subcontracted to SMEs) can opt to claim the Above The Line Credit at a 10% rate – this will potentially reduce the tax exposure or allow a loss-making company to get a repayment.
  • Qualifying capital expenditure can obtain 100% relief in the period in which it was incurred enabling the AIA to be preserved for other capital expenditure.
  • It is especially valuable for loss making SMEs who can exchange the loss attributable to R&D for a tax credit of 11% equating to a cash payment of £247.50 per £1,000 of expenditure.
  • Losses incurred can still be group relieved as usual.
  • Typical qualifying costs are:
    • Staff costs;
    • Subcontracted R&D;
    • Externally provided workers;
    • Consumable materials; and
    • Costs of technology or assets used in the R & D process
  • Where directors are substantially involved in R & D salary can become more tax efficient than dividends due to salary enhancement.

 

R&D tax credits – qualification checklist

R&D tax relief is available to more companies than you may initially think so it should be considered for most companies. If you can answer yes to any of the following, then R&D can potentially be claimed:

  • Have you made any advances in science and/or technology?
  • Do you face scientific or technological challenges in the development of products or in improving internal processes?
  • Do you manufacture anything?
  • Do you design any products specifically for a particular customer, or alter existing products to meet the requirements of a customer?
  • Do you solve problems for clients through testing, design, manufacturing or software development?
  • Do you employ engineers or technical staff?
  • Have you developed your own software?
  • Do you assist other companies with the development of their software?
  • Have you improved the technological operations of any software including improving functionality and processing or search speed of databases?
  • Do you use cutting edge technology or new programming languages?
  • Are you using existing technologies in a unique way or combining or linking two or more existing technologies in a way you have never previously been combined?
  • Have you developed any software driven processes that improve internal efficiencies (e.g. real-time processing, improving platforms, etc)
  • Have you developed any internal processes that reduce production times or cost or improve scalability?
  • Do you utilise subcontractors for any design, manufacturing, scientific or technological work?
  • Do you apply technology in a different or unique way to differentiate their business from their competitors?
  • Have you filed any patent applications?
  • Do you receive any State Aid or grants?
  • Are you a market leader or seeking to become the market leader in their sector?

 

Sectors where successful claims have been made on clients

  • Aviation
  • Architecture
  • Cloud based development
  • Construction industry
  • Electronics
  • Energy storage
  • Engineering services
  • Environmental services
  • Financial services and markets
  • Freight industry
  • Games industry
  • Glass manufacturing
  • GPS tracking
  • Laundry services
  • Logistics
  • Manufacturing
  • Mobile technology
  • Motor vehicle design
  • Pharmaceutical
  • Software
  • Telecommunications (and satellite technology)
  • Water Softeners
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