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Previous editions of our Taking Account Newsletter have focused on the enhanced tax relief available for qualifying expenditure on research and development (R&D) costs.

 

SME scheme

There are two R&D schemes with more generous reliefs available for small and medium sized enterprises (SMEs). An SME for this purpose is a limited company with less than 500 employees and either:

• an annual turnover under €100 million; or

• a balance sheet under €86 million.

Where an SME incurs qualifying R&D expenditure from 1 April 2015 relief can be claimed at a rate of 230% of the actual costs incurred. This means that for every £100 of qualifying costs a company can reduce its profits subject to corporation tax by an additional £130 on top of the £100 actually spent.

R&D tax credits

If a company makes a loss, it can choose to receive R&D tax credits instead of carrying forward what would otherwise be an enhanced loss for corporation tax purposes. In this situation a repayment can be claimed from HM Revenue & Customs (HMRC) at the rate of 14.5% of the enhanced value of the R&D expenditure.

The amount of tax credit that can be received is limited to the total of PAYE and National Insurance contribution liabilities of the company but it does include liabilities for all directly employed staff and not just those working on the R&D project.

New assurance scheme

HMRC has launched a new scheme called “Advance Assurance” to encourage small businesses to pursue R&D claims. The scheme will only be available to companies that have not previously submitted R&D claims.

Under the scheme a company can submit an application to HMRC seeking advance assurance that the activity it proposes to undertake will qualify for R&D relief. Assuming assurance is forthcoming for the first three accounting periods in which the company then submits R&D claims HMRC will make no further enquiries into the claims made.

HMRC also claims as further benefits of the scheme the provision of access to an R&D specialist who will help the company “understand and comply with” the R&D rules and the provision of a certificate that it argues will assist companies in obtaining funding for their R&D projects.

 

The new scheme was introduced with effect from 25 November 2015.

 

For more information contact Michael Marsh