R&D tax credits – Join the Pilot Scheme

There are generous tax breaks to companies involved in Research & Development.

For every £100 spent on qualifying R&D a company can currently claim a tax deduction of £200 and a loss making company can receive immediate tax refunds from HM Revenue & Customs (HMRC).

Yesterday (31 October) HMRC announced a pilot scheme to enable companies with less than 50 employees to obtain some assurance from HMRC that their R&D project should qualify for relief and not be enquired into.

The key to obtaining this assurance is to present the project at a meeting with HMRC setting out the reasons why the project is eligible for relief and how the qualifying expenditure will be calculated. If satisfied, HMRC will then issue an assurance letter stating that the company is in a strong position to claim R&D relief. This is not an outright clearance but it is designed to give some comfort to the company and to enable HMRC to identify projects that are low risk and require little enquiry when the claims are subsequently made. Companies with 50 or more employees can still claim as usual.

Urgent action required if you wish to join the Pilot Scheme

In discussions with HMRC we have been informed that this will be a fairly small pilot scheme and will be closed when sufficient applications have been received, probably around 30. Therefore, if you wish to join please contact us immediately.

Who could make a potential claim?

Only companies can make a claim, not individuals or partnerships, and for a claim to qualify a project must “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”.

So as well as scientific advances, advances in technology, engineering, and computer software programming could qualify.  What is important is that no-one else has done what you are seeking to achieve.

Currently a minimum spend of £10,000 p.a. is required to qualify but the Government is planning to scrap that requirement from 1 April 2012.

What expenditure can be claimed?

The allowable costs fall under a series of headings, the most significant of which is likely to be employee costs. The cost of wages, employer’s NIC and pension contributions of staff directly involved in R&D can be claimed as can the costs of staff who are managing or ‘supporting’ the R&D project.  If an employee spends part of their working week on R&D, then a proportion of their wage etc costs can be claimed.
Other qualifying costs include materials, utilities, computer software and a proportion of sub-contractor costs.  All provided, of course, that they are incurred as part of the R&D project.
Plant & Machinery can also form part of a claim as qualifying P&M can claim Capital Allowances at 100% and so be written off for tax purposes in full in the year of purchase.

How can Barnes Roffe LLP help?

It is very important that at the meeting with HMRC we can assure them that you understand the criteria for making a claim, can carry out the project in accordance with those criteria and can identify the qualifying spend on which the claim should be made. We have the experience to prepare your case and to help you obtain HMRC advance assurance that the project qualifies for relief. We would attend the HMRC meeting with you. We would also assist you in maximising the value of your claim.

A profitable company can see its taxable profits greatly reduced whilst a loss making company can ’surrender’ the losses for an immediate tax credit from HMRC.

Want some more information? Contact Paul Hughes (020 8988 6133), Andrew Carter (020 8988 6142) or your Barnes Roffe Partner without delay.

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