Research and development revenue expenditure (R & D) attracts corporation tax relief at various rates, but what is R & D? These are projects which seek to achieve “an advance in overall knowledge or capability in a field of science or technology,” through the “reduction of scientific or technological uncertainty”
H M Revenue & Customs give an example of a new DVD player coming to the market, market research is not R & D, but the development of an appreciable improved player would be, this might include an improved mechanism for the laser. Elements such as obtaining the intellectual property rights of cosmetic design that do not contribute to resolving scientific or technological uncertainties would not qualify.
There are a number of restrictions that will apply before a project can be classed as R & D.
There are two schemes governing the availability of the relief – the Small or Medium Enterprise (SME) Scheme and the Large Company Scheme.
Small and medium sized companies
This scheme applies to companies with fewer than 500 employees and either of the following:-
1) An annual turnover not exceeding 100 million Euros
2) A balance sheet not exceeding 86 million Euros
The relief is capped at 7.5 million Euros per project and is subject to the accounts being prepared on a going concern basis.
The rate of relief is set at 225% of qualifying R & D expenditure, this came in with effect from the 1st April 2012, at that time the minimum spend was also abolished.
The types of costs that qualify generally mean the day-to-day running of the business – not capital expenditure on assets (although you may be able to claim capital allowances on this expenditure). This would include such costs as employee costs – staff who are directly involved in carrying out the R & D, materials physically used directly in carrying out the R & D, utilities and software.
Claiming R & D
A claim is made in the company tax return for the accounting period involved. The time limit for making a claim is two years from the end of the accounting period to which the claim relates.
The effect of this can be to reduce the taxable profit that a company pays corporation tax on, or increase a loss that can be carried back, or forward. There is also the possibility of obtaining a tax credit which is repayable to the company.
If you have any projects that you think may qualify talk to us.
Telephone: 01233 630000