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The slides for a seminar held by Coadec and Magma on R&D tax credits.
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RESEARCH AND DEVELOPMENT TAX RELIEF
1 AUGUST 2013
ROSS NORTHALL
MAGMA CHARTERED ACCOUNTANTS
WHAT IS R&D?
HMRC defines R&D activities as those which:
“Directly contribute to achieving an advance in science or technology through the resolution of scientific or technological uncertainties”
An advance in technology does not necessarily mean ground breaking, innovative or novel work. The changes to a product may qualify if a company is making something:
cheaper faster smaller larger longer more efficient
WHAT TO LOOK OUT FOR
HMRC look at four key areas when ascertaining whether a company has undertaken R&D:
1. Whether there has been a scientific or technological advance2. What the uncertainties are3. How the uncertainties were overcome4. Whether the knowledge being sought was readily deductible for a
competent professional
EXAMPLES OF R&D PROJECTS
Transferring a desktop software package to a cloud based system
Developing an online fully integrated apartment letting and management system
Creation of remote wireless EPOS system
In-house development of stock management/EPOS system
Development of new formula for slug pellets due to a change in legislation
Development of bespoke manufacturing machinery for the manufacture of chemicals
Development of bespoke laser modeling products
SMALL AND LARGE COMPANY SCHEMES
SME scheme:
Companies with turnover up to €100 million Balance sheet up to €86 million Less than 250 employees
225% of qualifying costs If loss making a credit of 11% is available Subcontractors under large scheme
Large company scheme:
130% of qualifying costs
WHAT COSTS CAN A COMPANY CLAIM?
Staff costs (including employers National Insurance Contributions) External workers and subcontractors (65% restriction) Consumable or transformable materials Payments made to external workers Computer software licences and fees directly attributable to the R&D
work Heat, light, power, water and fuel used directly in carrying out R&D Where capital assets are acquired that are used solely for R&D
purposes, the costs of these assets will qualify for capital allowances at a rate of 100%
CONSIDERATIONS FOR START-UP BUSINESSES
Registering as a limited company
Payment of salary to Directors of business (following changes on 1 April 2012)
2013/14 – NIC’s £7,748 Income Tax £9,440
Corporation tax deductible
Post to Directors’ loan account if no cash available
CONSIDERATIONS FOR START-UP BUSINESSES
EXAMPLE:
New start up company with two shareholders/directors both undertaking R&D in company. Salary paid to both of £7,700 per annum, company not yet making sales and so loss making:
Total salaries = £15,400Uplift for R&D claim = £34,650
11% surrendered credit = £3,811.50
HMRC pay the company £3,811.50 for R&D work, no personal or NIC liability arises, individual has loan account upon which to draw down on in the future tax free!
MAKING A CLAIM
Made via corporation tax computation
Report should be produced to support claim in case of HMRC enquiry
Can claim for previous 2 accounting periods
Keeping of projects sheets will aid claim process
MAKING A CLAIM - EXAMPLE
A B C
Profit of company £300 £300£300
R&D expenditure - £100£300
Enhanced relief - £125£375
Adjusted profit £300 £175 (£75)
Corporation tax £60 £35 (£8)
Tax saving - £25 £68
OTHER CONSIDERATIONS
Patent Box
Providing 10% tax rate to companies obtaining an income from patents
Effective from April 2013
‘Above the line’ R&D Tax Credit Scheme
ANY QUESTIONS?
Magma is a leading independent firm of Chartered Accountants and Chartered Tax Advisers, providing a wide range of professional advisory services to owner managed businesses and private individuals via six integrated service areas: Audit and Assurance, Business Services, Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth Management.
Extensive experience in advising companies and individuals on Share Option Schemes and Research and Development Tax Reliefs in various sectors including retail, engineering, technology, property, manufacturing and IT.
ABOUT US
CONTACT DETAILS
Ross Northall – Senior Tax ConsultantT: 01788 539 000 M: 07809 549 194E: [email protected] W: www.magma.co.uk
IMPORTANT NOTICE
This document has been prepared as a general high level summary of some points of the R&D tax relief legislation. It has been written for information purposes, should not be considered to be exhaustive and should not be relied upon or be a substitute for professional advice which should be sought. No liability or responsibility is accepted for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. This document does not constitute taxation, legal, financial or investment advice.
