This helpsheet sets out important information in relation to enhanced claims for R&D work that are available to Large Companies.
Who will be eligible for the Large scheme?
Companies will be treated as large for R&D if they, including linked and partner enterprises, have:
- More than 500 employees; or
- More than €100m of turnover and more than €86m gross assets
Companies exceeding these criteria will not be eligible for the SME scheme though they may still qualify for the Large scheme if they are carrying out qualifying R&D. Some SMEs may also have to use the Large Scheme (see separate SME help-sheets)
What is qualifying R&D?
The DTI guidelines state that R&D is qualifying where there is a project seeking to achieve an advance in science or technology by:
- Extending overall knowledge in a field
- Creating a process, device, product or service which represents an increase in overall knowledge or capability within a field
- Making an appreciable improvement to an existing process, material, device, product or service through scientific or technological changes
- Using science or technology to develop an existing process, material, product or service in a new and appreciably improved way
In practical terms, any project undertaken by a company which faces challenges or difficulties into which money and/or time has been invested (whether successful or not) may qualify for relief
What is the relief available under the large scheme?
The most attractive relief available to a company claiming under the large scheme is an R&D expenditure credit (RDEC). Companies are eligible for a taxable credit of 11% (8.8% net) (10%/8% pre April 2015) of qualifying R&D expenditure.
The credit can be set against the company’s tax liability for a current or another (appropriate) period, group relieved, set against other outstanding tax liabilities or any excess paid to the company in cash.
Alternatively, companies could opt (until June 2016) for an additional deduction of 30% from trade profits however with the reduction in corporation tax rates in recent years this is less effective than the RDEC credit.
Are there any other differences to the SME scheme?
- There is no requirement that any intellectual property rights arise from the R&D
- Subsidies received are not deducted from the qualifying R&D expenditure
- Companies receiving grants can still qualify
Who might benefit from the relief?
- Companies developing new, or improving existing, products or processes even if unsuccessful
- Companies developing new, or improving existing, products or processes which have been subsidised in some way
- Companies which design bespoke or tailored products for third parties
- Companies who are industry leading or innovative
- Companies who have developed their own software
- Companies who develop tailored software for third parties
- Companies who are industry leading or innovative
- Companies with patented or patentable products
What expenditure can be included in the claim?
Expenditure incurred in the resolving of technological or scientific uncertainty can be included in relation to the following:
- Staff costs of employees involved, apportioned based on their time spent on qualifying activities
- Externally provided workers (normally restricted to 65% cost) such as agency workers involved in R&D
- Items which are consumed in the R&D process, for instance in materials used in developing prototypes as well as fuel, power or water consumed in the process
- Software used in R&D, apportioned between qualifying and non-qualifying activities.
- Other qualifying indirect activities
- In limited circumstances, costs of certain subcontractors involved in the R&D process (normally restricted to 65% cost), for instance universities or charities.
Making a claim
Claims are made through the company’s corporation tax return and these R&D claims are reviewed by specialist units at HMRC. As such it is important that sufficient information is provided alongside the computation for the claim to be processed. This includes details of:
- The nature of the project
- The scientific or technological advances sought
- The scientific or technological uncertainties encountered and how and when they were resolved
- Why the advances were not readily deducible by a competent professional
- Details of qualifying expenditure
How can Menzies help?
Menzies Innovation and R&D Team works in partnership with clients and other professionals to provide a commercially relevant and effective tax planning service, from concept development through to collating and presenting claims in a format to expedite the R&D claims process. This includes:
- Navigate you through the claims process from recording, reporting and final submission
- Identifying and, improving methods for identifying, qualifying expenditure to maximise effectiveness of the reliefs
- Specialist knowledge of the R&D tax regime
- Establishing eligibility under the various schemes
- Identifying, and developing systems to identify, qualifying projects
- Presenting information to minimise exposure to challenges from HMRC
- Considering other relevant or complementary tax reliefs that may arise from the development process