Are you eligible for research and development tax relief?
In his first Autumn Statement, the Rt Hon Philip Hammond MP, Chancellor of the Exchequer announced that “we do not invest enough in research, development and innovation.” As a result, the government has now pledged to spend an extra £2billion on research and development, in an effort to boost the technology industry and reward innovative corporations.
So what exactly is research and development (‘R&D’) tax relief, and who is eligible?
R&D tax relief is available to companies who are involved in projects that seek to “achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty - and not simply an advance in its own state of knowledge or capability.”
R&D tax relief is only available to companies who are within the scope of corporation tax, meaning that dormant companies or those in liquidation do not qualify.
How much is the relief?
The rate of R&D relief available depends upon the size of the company. If the company is either small or medium sized, then from 1 April 2015 the company has been entitled to claim an enhanced R&D deduction of 130% of their qualifying R&D costs. If the company is in a loss making position, or as a result of the enhanced R&D deduction they become loss making, the company can surrender the loss and receive a repayable tax credit. As from 1 April 2014, the repayable tax credit is 14.5% of the loss surrendered. There are, as you would expect, some restrictions on the amount of loss you can surrender, but effectively for every £100 spent of qualifying R&D activities, the company could potentially receive £33.35 of cash back.
From 1 April 2015 large companies will receive a taxable credit of 11% of the qualifying costs. Whilst not quite as generous as the relief for small or medium sized companies, this still represents a very welcome cash reward.
It is possible to look at the last two accounting years for a company. This is because an amended corporation tax return can be submitted to H M Revenue and Customs within one year of the original filing deadline. For example, if the company has a year end of 31 March, a claim for R&D tax relief for the year ended 31 March 2015 can still be made provided the amended corporation tax return is submitted by 31 March 2017 - this could result in an immediate tax refund for the company and improve your cash flow position.
So, do not delay in contacting a member of our team, as depending upon your company’s year end you could lose out on one year’s potential R&D claim.
Our tax team have extensive experience in reviewing projects and costs to see if they qualify for R&D relief. Please speak to Jennifer Curtis or Tim Adcock for further advice.