R&D tax

How to claim enhanced Research and Development (R&D) Tax Relief?

The UK Research and Development (R&D) Tax Relief Scheme is delivered via HMRC’s corporation tax filing system.

After each financial accounting period, a company is required to prepare statutory accounts along with a corporation tax computation.

The corporation tax computation calculates the tax liability of the company for the period (if profitable) based on the statutory accounts. If pre-revenue and / or in development mode then the corporation tax computation will calculate the company’s losses for the period.

The R&D tax claim figure is entered into the corporation tax computation and CT600 corporation tax return to claim the notional enhanced R&D tax deduction.

The corporation tax return and supporting computation is filed online with HMRC. It is recommended that the company also prepares a report outlining the nature of the R&D work and why / how it satisfies the HMRC definition of qualifying R&D plus detailed supporting claim calculations – or you could get an R&D tax specialist to help :)

If profitable, this will result in a reduction in the corporation tax payable.

If loss-making, the company can elect to surrender the enhanced tax loss for a tax credit payment from HMRC. Or it could elect to carry the enhanced tax loss back twelve months (if profitable) or carry forward to utilise in future periods.

HMRC aims for a 28 day turnaround time in reviewing and processing R&D tax claims.

If you would like to learn more, why not subscribe for our R&D Tax Relief Training Course:

R&D Tax Credits – Don’t miss your claim!

Statistics from HM Revenue & Customs suggest that less than 0.25% of UK companies are taking advantage of this fantastic Government incentive which can apply to all companies across all sectors.

The R&D tax credit scheme has been in existence since 2000 and the tax relief available has got better and better year on year.

It is important that you investigate the potential for your company to make a claim – you could seek some professional specialist R&D advice here.

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5 essential tax tips for innovative companies in 2013

As an ambitious entrepreneur and founder of a fast growth business you may benefit from reviewing the following generous tax breaks as part of your 2013 planning:

1. Patent box – introduced with effect from 1 April 2013, companies will be able to elect into this new beneficial company tax rate and pay tax at just 10%. This new rate of corporation tax will be phased in over a four year period.

Innovative UK companies should be taking steps now to ensure that their patents qualify and apply across the widest possible range of products and services to maximise tax savings.

2. R&D tax relief – the SME R&D tax relief continues to get better and better with the enhanced corporation tax deduction now at 225% with no de minimus spend nor PAYE cap on repayments.

Average claims are approx £40,000 yet less than 1% of UK SMEs claim it – are you missing out?

3. Entrepreneur’s relief – when you come to sell the shares in your company you could benefit from this preferred rate of capital gains tax of just 10% on the first £10m of lifetime gains. You must be an officer or employee of the trading company and hold at least 5% of the ordinary shares and voting rights for the 12 months leading up to disposal of the shares to qualify.

You must ensure that the qualifying conditions are not (inadvertently) breached especially if a sale is on the cards in the foreseeable future.

4. EMI share options – the Enterprise Management Incentive share option scheme (EMI) has long been an attractive tool for retaining and incentivising key employees, however, it’s about to get even better….

It has been a long running source of frustration that the option holders struggled to satisfy the requirements of entrepreneur’s relief (ie they rarely tick the 5% share holding requirement nor the 12 month minimum  holding period), however, changes are afoot to allow option holders to accrue their 12 month qualifying holding period from the date of grant and for sub 5% holdings to qualify. This promises to be a great development.

5. Seed Enterprise Investment Scheme (SEIS) – raising funding for early stage (< 2 years) trading companies is made a whole lot easier when the investors can receive a 50% income tax break on the funds invested (potentially up to 78% tax relief up until 5 April 2013)!

Companies are limited to £150,000 in total under SEIS whereas individuals have a £100,000 annual investment allowance.

These are just a handful of potentially lucrative tax breaks that should be high on your agenda if you are to release much needed cash into your business and get off to a cracking start in 2013!

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HMRC offers R&D tax credit help for small companies

HMRC has announced today a pilot scheme to assist small companies in making their first Research and Development (R&D) tax credit claim.

Small companies for these purposes are companies with fewer than 50 employees – so still fairly sizeable in actual fact.

The idea is that participants will be allocated an R&D tax contact from HMRC who will assist the company in putting together a claim and agree a basis for the next two years’ claims provided that they follow the same basis.

This is great news for small companies or startups who would like advance assurance before commencing work in compiling and filing an R&D claim, however, we’ll have to see how this works in practice. For example, in terms of

  • is there sufficient HMRC resource to commit to individual company claims (they are already stretched); and
  • I hate to be cynical but there has to be a question mark over HMRC’s incentive to help companies maximise claims or explore angles or more obscure claims that might not be immediately apparent.

The sorts of issues and technical matters that you would hope your accountant or tax advisor is already doing for you.

CBI provides blueprint for building a Creative Britain

Creating growth – A blueprint for the creative industries is a recently released paper by the CBI aimed at focusing the UK coalition government on doing more to support UK creative and digital industries. Although I think this report provides a good overarching vision of what our UK creatives need from the government to flourish, in my view it is lacking on the specifics in terms of laying out a clearly defined roadmap for achievement.

Here are my initial thoughts on what’s there:

  • Ensure regulation and competition is fit for purpose. Easy to say, harder to achieve given that our successive governments have added 1,000s of pages of tax legislation over the past 10 years (three Finance Acts will be issued this year alone!). The Office of Tax Simplification has recently been launched to help tackle the minefield of tax reliefs and bureaucracy encountered by small businesses and they will report their findings early next year. Don’t hold your breath though in the short-medium term!
  • Ensure the ability to derive value from intellectual property is a subject dear to my heart. In a world where the number one driver of value is increasingly intellectual property (IP) – something that we are darn good at creating in the UK – it is vital that we have a commercial, legal and tax framework that supports its protection and successful exploitation. I am not a lawyer so can’t comment on the UK legal ins-and-outs, however, from a UK taxation standpoint I spend much time advising companies on maximising the value derived and I can say that our tax regime is getting more supportive e.g. we have the popular R&D tax credit regime plus a review this Autumn on the taxation of intellectual property (including consultation on a likely lower rate of taxation on patent income) but there is much farther to go – a video games tax break for example?!
  • Deliver a competitive framework. This mirrors the stated aim of George Osborne in his inaugural Budget speech to make the UK tax regime the most competitive in the G20. The phased reduction in the main UK rate of corporation tax from 28% today to 24% by 2015 is encouraging. Note that small companies (broadly those stand-alone companies with taxable profits less than £300,000 – which will cover most UK creative companies) will pay tax at only 20% from next April (from 21% today). However, it is the PAYE, VAT and the myriad of other ongoing compliance and year end forms that add to the red-tape for small businesses. There is also the vast array of available tax reliefs to claim which is great – but only if your accountant or business advisor tells you about them! :)

What are your thoughts on this report? What does this mean for creative and digital businesses in Manchester, Liverpool and the North West? Does this go far enough?

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