Fancy a boost from the taxman
6 Nov 2007 by Evoluted New Media
It’s not often the taxman gives you money, but here’s a chance to give your company a competitive edge with a helping hand from HM Revenue & Customs
It’s not often the taxman gives you money, but here’s a chance to give your company a competitive edge with a helping hand from HM Revenue & Customs
If your company carries out innovative work in the science field or has a research and development section, then you could be eligible for tax credits, which could reduce your tax bill or, in certain circumstances, give you a cash payment.
Either way, it could help your company fund technological breakthroughs, helping it to grow and prosper and get ahead of the competition.
Composite Metal Technology’s Managing Director, Neil Collins, said: “The R&D tax credit repayments we have received in the past have proved invaluable in helping to subsidise CMT’s research and development costs, and we very much appreciate the fact that HMRC have always dealt with our claims extremely promptly.”
Research and development tax credits were first introduced in 2000 to promote investment in innovation. They are open to businesses of all sizes, but HM Revenue & Customs (HMRC) is urging more small and medium-sized enterprises (SMEs) to take advantage of this type of tax relief.
It’s never been easier to claim and seven specialist HMRC Units have been set up across the country to help companies make successful claims to the relief.
The Units are happy to visit companies and help them put their claim together, flagging up opportunities they might otherwise miss and making the whole process simpler and pain-free.
More than 4,500 SMEs are already claiming in excess of £250 million each year in tax credits.
The tax relief works by allowing companies to deduct up to 150% of their qualifying expenditure when calculating their profit for tax purposes. This is set to rise to 175% next year. Qualifying expenditure includes: staff costs, consumable items and software, which is directly related to R&D activities.
So how do you know if your company is eligible and how do you apply?
To be in the running, your company must be carrying out qualifying research and development and this must aim to achieve an advance in overall knowledge or capability in the science or technology field. It has to extend overall knowledge or create a process, material or device and this can’t just be within the company, it needs to be much wider. A full definition of research and development for these purposes is provided by the Business, Enterprise, and Regulatory Reform Department (formerly the DTI).
The company can be a SME or a large company - either can apply for research and development tax relief, but there are separate schemes depending on your size.
If you think you might be eligible and want to find out more go to www.hmrc.gov.uk/randd/index.htm.
It is also worth looking at www.hmrc.gov.uk/randd/top10-error.htm to avoid common mistakes and speed up your claim.
With the vast majority of companies receiving their payable tax credits within a month of a successful claim, the big question is can you afford not to apply? Do it today and take a step towards making your company more successful.
| Top 10 common errors Get it right first time and speed up your claim. This section sets out the more common mistakes HMRC has seen in R&D tax relief claims. These errors can easily be avoided, so check to make sure you have not made similar errors in your own claim. 1. Staff expenditure claimed for persons not employees of the R&D company. • Staff must be employed under a contract of employment with the company undertaking the R&D in order to qualify. • In groups of companies, staff or directors sometimes have their contracts of employment with other companies even though they work for the R&D company. Because they are not employees of the R&D company, their costs do not qualify as staff expenditure, although they may qualify as payments to external staff providers. 2. Other errors in claiming staff expenditure. • As highlighted above, it’s essential there is a contract of employment between the R&D company and the employee being claimed for. Thus expenditure on consultants or agency workers does not qualify under this heading, although it may qualify as expenditure on payments to external staff providers or sub-contracted R&D. • The staff claimed for must be directly and actively engaged in the R&D which means expenditure on staff engaged in activities described in the DTI R&D guidelines as ‘qualifying indirect activities’ does not qualify. The way in which a company engages firms or people, other than employees, for an R&D project can affect whether the expenditure can qualify for R&D relief. 3. Ineligible expenditure claimed as materials. • Generally, only physical materials consumed in the R&D are eligible. • However, there is a specific provision allowing expenditure on fuel, power, water and computer software to qualify for relief. • Expenditure on items like telecommunication costs, data costs and clinical trials volunteers does not qualify. 4. Expenditure claimed at a time when it doesn't qualify. • Extensions to qualifying expenditure were introduced on specific dates. Expenditure incurred prior to these dates does not qualify. • The expenditure within the following categories is valid as follows for claims under the SME scheme: - staff costs of persons employed for less than 20% of their time on R&D (expenditure from 27 September 2003); - payments to external staff providers (from 27 September 2003) - computer software, power, water and fuel (from 1 April 2004). 5. Connected parties. Make sure that where R&D has been sub-contracted to connected parties, or staff have been supplied to the R&D company by connected parties, that the special rules have been applied. 6. Company is not an SME. • Look carefully at the employee, turnover and balance sheet totals allowed, the ownership of the company, and any companies in which the R&D company has a financial interest. 7. Loss previously surrendered for payable tax credit is carried forward. If losses are surrendered in return for a payable tax credit the surrendered losses cannot also be carried forward to set off against future profits. 8. PAYE/NI is less than payable tax credit claimed. • Any payable tax credit cannot exceed the company's total PAYE and NIC liabilities for payment periods ending in the accounting period. • The PAYE and NIC liabilities taken into account are those in respect of the company's own employees only, but include both R&D and non-R&D staff. 9. No account taken of subsidy or State aid. • If a notified State aid is received in respect of the R&D project, expenditure on that entire project cannot benefit from R&D tax reliefs and payable R&D tax credits for SMEs. • If a subsidy from someone other than the State, or State aid which is exempt from notification to the European Commission, is received the amount of that subsidy/aid may reduce any eligible qualifying expenditure. • The person giving the aid or subsidy should know whether State aid has been notified to the European Commission or not. 10. Expenditure claimed for the whole of a commercial project. A commercial project is usually wider than an R&D project for the purposes of the DTI guidelines that define R&D. Guidance on the extent of an R&D project is in the DTI guidelines. |
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