Research & Development Tax Relief - useful facts

HM Revenue & customs (HMRC) has recently published its annual statistics for company claims for Research & Development (R&D) tax relief claims. There continues to be an increased uptake in claiming the generous relief, partly as the relief becomes even more generous and partly as more and more companies become aware of the relief for the first time.

The data is for the 2012-13 financial year. The headline statistics are:

  • Since its introduction in 2000 over 100,000 claims have been made by over 35,500 different companies claiming in excess of £9.5 billion in tax relief
  • 15,930 claims were made in 2012-13, an increase of 26% over the previous year; qualifying costs within the claims totalled £13.2 billion, 10% higher than the previous year
  • “Manufacturing”, “Professional, Scientific and Technical” and “Information and Communication” sectors accounted for 77.1% of the claims and 80% of the total amount claimed (sector data based on SIC2007 coding for claimant company)
  • 8,740 claims by Small and Medium Sized Enterprises (SMEs) (being a very generous definition of such for this purpose) reduced their tax bills whereas a further 1,220 SMEs claimed payable credit (cash back) as they were loss making. 3,050 SMEs made a claim for a combination of tax deduction and cash back
  • Although SMEs make up the greater number of claims, 80% of expenditure claimed was made by large companies (£10.6 billion compared to £2.6 billion for SMEs)
  • 580 SME companies claimed under the large scheme as sub-contractors to large company R&D
  • 545 claims were made in the North East of England, 1,545 in the North West of England, 1,065 in Yorkshire and Humber and 905 in Scotland, claiming £25m, £85m, £45m and £45m respectively. Over 40% of claims are made by companies in London and the South East. (region data based on registered office)

There are still many companies failing to make claims for various reasons. Our experience can summarise these predominantly into four categories being:

  • We are not doing R&D – many companies do not initially realise that their project is R&D
  • Claiming the relief is complicated – not if you seek good advice
  • The costs of claiming outweigh the benefits – this is rarely the case
  • We received a grant towards R&D, we cannot have the tax relief too – this is by far the biggest misconception. The receipt of a grant may affect how much additional tax relief the company can claim but you can have both!

The three tax reliefs for innovative companies are very generous and are:

  1. R&D tax relief as above. 125% additional relief on costs for SMEs, 30% for large companies or SMEs with grant funding or subcontractors to large companies. New Research & Development Expenditure Credit (RDEC) for large companies to allow for payable credit as an alternative to the 30% relief
  2. Patent Box – an effective 10% rate of Corporation Tax on relevant profits from patents currently being phased in http://www.armstrongwatson.co.uk/patent-box
  3. 100% capital allowances for assets acquired, including buildings, used in R&D

Contact details: r&d@armstrongwatson.co.uk

The full analysis of the data can be found here.

 

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