R&D Tax Relief: Are you getting the credit you deserve...?

Sports Technology Institute, Loughborough

9 September 2010

(i) Overview of R&D tax relief schemes

(ii) R&D within sporting industries

(iii)Misconceptions and concerns....

(iv)Practical advice to maximise the relief

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(i) Small or Medium Enterprise (SME) regime

(ii) Large Company Scheme

(iii) Qualifying expenditure

(iii) Research and development - definitions

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Pre 1 August 2008

< 250 Employees

and

or

Balance sheet totalling no more than €43m

Annual turnover notexceeding €50m

Post 1 August 2008

< 500 Employees

and

or

Balance sheet totalling no more than €86m

Annual turnover notexceeding €100m

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SME

• Corporation tax relief at 175% on expenditure.

• Equates to 15.75% saving on initial cost.

• Loss surrender for cash back at a rate of 24.5%.

Large Company

• Corporation tax relief at 130% on expenditure.

• Equates to 8.4% saving on initial cost.

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Reduced

taxable profit

OR

Surrender

loss

Revenue R&D expense £1,000,000

Uplift at 75% £750,000

Total deduction will result in:

Qualifying R&D £1,000,000

Uplift at 75% £750,000

Loss surrendered £1,750,000

Tax saved @ 21% of £367.5k Tax credit @ 14% £245k

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Revenue expenditure uplift 130%

No surrender credit

Effective tax saving (at 28%) of

8.4% on expenditure

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Companies which receive funding for R&D activities may not claim under the SME Scheme.

SMEs undertaking R&D on behalf of others may not claim under the SME scheme.

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• All companies:◦ Staff costs (wages, employer NIC, pension but no BIK)◦ Consumables◦ Power, fuel, water used in R&D◦ 65% of payments to agencies (externally provided workers)

• SME regime only:◦ 65% of payments for R&D contracted out to others

• Large company regime only:◦ Payments to qualifying bodies (e.g. universities) and

individuals◦ Customer funded research (but not where customer is SME)

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• Qualifying expenditure on Qualifying R&D

• 100% R&D allowances available

• Provides a permanent benefit for assets not qualifying for other allowances and may be claimed on buildings and facilities.

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R&D takes place when 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

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Significantly enhanced systems in terms of scalability, speed, reliability, flexibility and security

Bringing together different tools and testing compatibility

Maintenance

R&D

Advance in science/technology

AND

Technologically uncertain

Routine/Repeat

All this qualifies

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Products, materials, services, processes...

In house and contracted projects

Improving, upgrading, integration...

Aborted projects / unsuccessful projects

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Worried by H M Revenue and Customs?

We don’t qualify?!

We don’t have the resources!

It will cost too much to claim!

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• Coalition Government want to ‘...refocus R&D’

• Restrict Large Company Scheme?

• Restrict industries?

• Restrict rates for some and increase for others?

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Consider R&D tax relief before commencement of project.

Include within budgeting and accounting processes (and financing!!)

Consider the costs which are incurred.

Obtain guidance (and comfort)

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Contact details:

Andrew Reid

Capitus Group

Email: reid@capitus.co.uk

Tel: 028 2564 7022

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