Research and Development – Tax Benefits for Companies
14th Jan 2010
R&D tax credits are a company tax relief that can either reduce a company’s tax bill or, for some small or medium sized companies, provide a cash sum.
What is R&D?
Broadly an activity may be R&D if it seeks to achieve a significant advance in science or technology through the resolution of a scientific or technological uncertainty. It is amazing how many activities can fall within this definition, for example in the field of design and engineering where problems or uncertainties are frequently being resolved.
Which companies qualify?
All companies qualify but the rules are more beneficial for small and medium sized enterprises (broadly income up to 100 million euro, balance sheet up to 86 million euro). Such companies can claim:
· Tax relief for 175% of their R&D expenditure; or
· A tax credit (ie cash back from the government) of £24.50 per £100 of qualifying expenditure;
Which costs qualify?
All costs must be attributable to the R&D project and will usually include:
· Staff costs (pro-rated if necessary);
· Consumables such as fuel and water;
· Software used in the project.
· Subcontracted expenditure
Capital costs do not qualify, but 100% capital allowances may be available on these.
What should you do?
The tax incentives given for R&D projects are therefore significant. Even loss making companies can benefit by claiming the tax credit. This may make all the difference to a company struggling to control cash flow.
It may be worth your while considering whether any of your business activities could be described as R&D. You can look back broadly two years. If you are unsure and would like further clarification of the definition of R&D, the BERR website at www.berr.gov.uk/files/file13258.pdf provides detailed guidance defining R&D for these purposes.
This article gives only a broad outline of the R&D rules. Emma can be contacted on 0191 411 2468 or emma.glover@rowlandsaccountants.co.uk if you require further detailed information.
Author: Emma Glover (emma.glover@rowlandsaccountants.co.uk)
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