A pop quiz for you this week…
1. Would you describe yourself as a ‘boffin’?
2. Do you think the best bit of a James Bond film is where Q is explaining his latest gadget? (“Pay attention 007…”)
3. Do you think that rubbing your chin thoughtfully and wearing a white coat is a ‘good look’?
If the answer to any of these questions is yes, it might mean that you are a little strange but probably means that you are into research and development. However with the Government wishing to encourage R & D by providing tax incentives, it means that it is not just the preserve of Q Branch or CERN but you the business owner.
What’s the deal?
You will be aware that normal expenditure on wages, materials etc is 100% allowable for corporation tax and, at the standard corporation tax rate, will save you 20% on your CT bill. E.g. you spend £100,000 on materials, you save £20,000 on your tax.
For R & D expenditure the allowable % is not 100% but 225%.
Using the same example as before with £100,000 of qualifying R & D expenditure gives a tax deductible amount of £225,000 and a saving on your tax of £45,000, over double the saving on normal expenditure!
“But what happens if my company is making a loss?”
This is a good point, you can’t very well save corporation tax if you are actually not paying any in the first place – however for these circumstances you have 2 options:
1. Carry forward the enhanced loss to offset against future profits generated; to use the previous example, you would carry forward £225,000 of losses.
2. You can cash in your R & D expenditure for a HMRC refund. Currently this is at a rate of 14.5%, so again, using the previous example, with R & D expenditure of £100,000 you would be able to claim a refund of 14.5% x £225,000 = £32,625. Tasty!
What conditions do I need to meet to claim the credit?
- The expenditure must be ‘revenue’ not ‘capital’; e.g. wages, materials and not an item of plant and equipment
- The expenditure must be carried out by the company and not contracted out
- The expenditure must be financed by the company; e.g. if the company has a grant from the Government then then it cannot claim the R & D credit
- The R & D must be related to the company’s trade
So, you’ve ticked all the boxes above but then you have to satisfy the trickiest question:
– Is what you are doing actually research and development?
HMRC guidance on this says that the company should ask itself the following questions:
- What is the scientific or technological advance?
- What were the scientific or technological uncertainties involved?
- How and when were they overcome?
- Why was the knowledge being sought not readily deductible by a competent professional?
As clear as mud? I think it is meant to be – each case will be considered by HMRC on its own merits.
Give it a go – they can only say no!
With our tax expert Chris, we can help you assemble an R & D claim and submit to HMRC. If the claim is refused, the company hasn’t lost out but if the claim succeeds, the tax claim can be very beneficial.
Please do contact me if you have any questions on this or any aspect of your accountancy affairs, both business or personal.
Until next time…
Want to know more? Call us on 01392 260310 or email firstname.lastname@example.org