Research and Development (R&D) tax relief has been available for some time although it is in recent years that this relief has seen significant increases. With effect from 1 April 2012, companies will be able to obtain an additional 125% tax relief on R&D expenditure. Furthermore the government has abolished the £10,000 minimum expenditure requirement and therefore this opens this tax relief up further to more businesses.
What expenditure qualifies for R&D?
There are certain criteria that must be met for expenditure to qualify for this tax relief and it is likely the Revenue will review the position before agreeing the claim. One of the key criteria is that the intention of the project or work undertaken should be to result in a scientific or technological advancement. The Revenue would therefore expect there to be certain scientific or technological uncertainties which could not readily or easily be answered. It is recommended this information is provided to the Revenue when making a claim.
The R&D project must also relate to the company trade, be it an existing entity or one intended to be started based on the R&D result.
There is a large scope of costs that can be claimed through R&D relief including consumable materials and relative proportions of employee costs, sub contractors, utilities, software and other overheads.
What does this mean in £’s?
£20,000 of usual expenditure at the small rate of corporation tax would equate to £4,000 off your tax bill. The same level of expenditure on qualifying R&D costs would result in a £9,000 reduction.
How to benefit if your company has no corporation tax to pay?
If you have made a loss in the period and therefore have no corporation tax payable then you can apply the R&D relief to increase the available trading loss. This can then be utilised in earlier or later periods, depending on your circumstances, under the usual rules. However, it is also possible to claim R&D tax credits and turn the relief into immediate cash, albeit at a lower percentage than you would obtain from the direct corporation tax relief.
This relief is very attractive and it is certainly worth considering whether any element of your business qualifies for this. That said, you do need to ensure you meet the various strict criteria before proceeding.
If you would like further information on R&D tax relief, please contact your nearest Perrys branch,