Monday 6 September 2010

Research and Development Tax Credits

Following on from my last blog, I didn’t make it clear, but there are accountants who do advise on tax credits – cheers for them! But they are in a minority……


Today I’m wanting to discuss another type of tax credit, Research & Development (R&D) Tax credits.

All too often this is overlooked in preparing a companies tax return.

A tax allowance of 175% (in effect an extra 75% tax deduction) is given to SME’s on their R&D spend in a financial year (£10,000 or more), which works out at a tax saving of 36.75% of the R&D expenditure for companies paying the small companies rate of 21% (usually a company with profits under £300,000). It is even possible to surrender the relief where a trading loss arises for a cash refund, albeit at a lower rate (subject to certain restrictions surrounding the payroll spend).

Staffing costs can be included along with software and consumable items and the expenditure involved must relate to the company’s trade or a trade derived from the expenditure. The company must be a going concern.

Specialist HMRC units handle R&D Tax Credits. What are the tax office looking for?

1. Projects undertaken achieve some sort of advance in science and technology; what is meant by an “advance”? An appreciable improvement in existing technology

2. In making the advance the company must be overcoming technical uncertainties (HMRC are keen on this one)

3. Projects are not readily deducible by a competent professional working in the field – practically a project should last a minimum of 3 months. One week won’t suffice!

Are you missing out on a big tax deduction?

If you wish to know more, please contact Jan on 07890 239442.