From April 2012 small companies are allowed to claim corporation tax relief equivalent to a generous 225% of any qualifying revenue expenditure incurred on qualifying research & development (R&D) initiatives.
This provides an excellent incentive to SMEs to fund greater levels of R&D from 2012/13.
Definition of R&D
A company can only claim for R&D relief where a project seeks to achieve an appreciable improvement in an existing process, device or product through technological changes in R&D. Therefore for a project to qualify under this scheme there must exist an advance in overall knowledge or capability in a field of science or technology ~ and not just an improvement in a company’s own state of knowledge or capability.
In order to qualify for R&D relief, the revenue expenditure must fall under one of the following headings:
- Payroll costs relating to staff undertaking research & development work (including salaries, employer national insurance and pension contributions but not the cost of providing taxable benefits)
- Materials consumed or transformed
- Cost of utilities such as power, water and fuel
- Computer software bought specifically for research & development work
- Specially commissioned parts for prototypes
- Overheads directly relating to research & development
- Subcontractor costs
- A proportion of variable overheads
Research & Development Report
To claim the relief a research & development report needs to be submitted with the company’s tax return and computations.The report should include an overview of the company’s business and details of the R&D projects being carried out, together with details of staff assigned to each project and a summary of the expenditure incurred under each main category.
A claim for R&D must be made within two years of the end of the accounting period in which the costs were recognised.
Loss Making Companies
Where a company is loss making, it has the option of claiming a tax refund equal to 12.5% of the enhanced qualifying R&D expenditure. From April 2013 the Government is to introduce an ‘above the line’ credit for R&D. The R&D credit will be a minimum of 9.1% and be a payable credit for loss making companies.
Although the enhanced R&D Relief is only available for ‘revenue expenditure’ a company which incurs expenditure on plant and equipment relating to R&D may also claim a 100% tax allowance.
Further InformationFurther information on Research & Development Relief is available on HM Revenue & Customs website at:http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm