July 31 2014 Latest news:
Steven Scarlett, partner Lovewell Blake
Saturday, July 7, 2012
The government has increased the tax relief available to small and medium enterprises for research and development activities.
The relief is now equal to 225pc of relevant costs, or a cash payment worth 24.75pc of qualifying expenditure.
A small or medium enterprise for these purposes is one with fewer than 500 employees, annual turnover under 100m Euros or a balance sheet totalling no more than 86m Euros. Consequently, it is available to sizeable companies.
The expenditure must rate as research and development under UK generally accepted accounting policies. In addition, the Department for Business Innovation and Skills guidelines define this as “where there is a project that seeks to achieve an advance in science or technology with activities that directly contribute to the resolution of scientific or technological uncertainty. This must be in connection with the company’s trade or prospective trade”.
The emphasis should be on the uncertainty to be resolved rather than how solving this can be commercially exploited.
It is not restricted to pure “white coat” scientific research and can apply to “brown coat” activities such as appreciable improvements in design, engineering, processes and existing products.
These R & D costs can include:
Staffing costs including employer pension contributions and Class 1 NICs.
Software purchased for the project.
A proportion of overheads such as power, heat, light etc.
Qualifying indirect activities such as accountancy, HR, security, cleaning.
65pc of the cost of externally provided workers and sub-contractors. Special rules apply when the parties are connected.
The claim has to be made within two years of the end of the company’s accounting period. To help the claim succeed, this should involve technical specialists and not just finance staff, focus on the uncertainty to be resolved, include a project summary and ensure all qualifying costs are captured.
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