Science and technology based companies may be able to claim 225% of research & development (R&D) costs against taxable profit. This can even lead to a company receiving cash back from HM Revenue & Customs (HMRC) if the claim creates or enhances a tax loss. From 1 April 2012 this cash back is no longer subject to a cap.
The SME Scheme and The Large Company Scheme
There are two schemes, the SME Scheme and the Large Company Scheme. They are very similar in most respects with the major exception being the rate of enhanced relief. The SME Scheme provides a 125% enhanced relief, i.e. for every £1 qualifying spend the taxable profit is decreased by or tax loss increased by a further £1.25. For the Large Scheme, the enhanced relief is 30%.
We have found that many companies are missing out on claims for various reasons. Some of the most common of these are below.
- 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 cannot separately identify costs – HMRC does not expect the company to reinvent its accounting records to make a claim and will accept some elements of estimation
- 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 Patent Box
The Patent Box is a new relief from corporate tax that entitles any company subject to UK corporation tax to only pay tax at 10% on the net income received from patents and similar Intellectual Property (IP). Visit our Patent Box page for information on this new tax relief, including what it could mean for you and and how to plan for it. You can also download out Patent Box Fact Sheet for further detail.
Our Research & Development Tax Relief Expertise
At Armstrong Watson we have many years of experience dealing with claims of all sizes in various sectors including manufacturing, engineering, nuclear, IT and pharmaceuticals. To see some of our R&D case studies, click on the links below:
Clark Door Ltd:
'Armstrong Watson have been Clark Door Ltd accountants and auditors for many years. With the introduction of research and development tax relief in November 2000, Nigel Holmes approached us as a company he thought might qualify for this relief. Since that time Armstrong Watson's proactive approach and technical knowledge of the ever changing rules has resulted in substantial tax savings from the application of this relief. Their approach results is a very smooth procedure and claims process and we have no hesitation is recommending their service to third parties.'
LLW Repository Ltd:
'The Low Level Waste Repository (LLWR) is the UK’s national low level waste (LLW) disposal facility and located on the West Cumbrian coast approximately 7km south east of Sellafield.On the 29 July 2007 LLW Repository Limited separated from the Sellafield site and became one of the first Nuclear Decommissioning Authority’s (NDA) sites to be competed and become a stand alone Site Licence Company.
We appointed Armstrong Watson as our Research & Development (R&D) tax relief advisers due to their strong technical knowledge in this particular area of tax, and their willingness to respond to our tight deadlines in preparing our R&D reports. Their flexible approach and clear advice is of great value to LLWR and has assisted us in returning value for money to the NDA. We highly recommend Armstrong Watson’s R&D tax services to any company undertaking R&D.'
Camtex Fabrics Ltd:
'Camtex Fabrics Ltd is a manufacturing company based in Workington, Cumbria. We undertake research and development of new products for the footwear industry. For the last 7 years, Armstrong Watson have advised us on R&D tax claims. In particular, Nigel Holmes has been the key contact.
Nigel has a very good understanding of the rules and has been proactive in advising us how to maximise the benefit to Camtex. His experience has enabled us to formulate a record keeping process and a presentation format that meets the needs of HMRC in a timely fashion.'
Clark Tracks Ltd:
'We were approached by Armstrong Watson (already the auditors of Clark Tracks) as a potential R&D claimant. They provided us information about the scheme and helped us to identify costs which qualified. Nigel Holmes provided good support and helped ensure we produced a claim that would result in some tax back. In the current economic climate companies need to save money in all possible areas, the fact that our auditors are looking at this for us as well is a great help.'
Supersonic Software Ltd:
'We’ve been working with Armstrong Watson since we incorporated over 20 years ago. The quality of the service they provide has always been of the highest standard. In recent years Nigel Holmes in their Corporate Tax department has provided us with invaluable assistance with regards to R&D tax relief. His detailed knowledge of the system and its procedures has (from our point of view) made claiming this very straightforward. I know from speaking to similar companies to ours that this has not often been their experience.
We’ve successfully made significant claims over the last 3 years. In these tough times this has made a tremendous difference to our business.'
Traak Systems Ltd
'Traak Systems provides real-time predictive analytics based on our award winning technology. We blend disparate live data streams from many sources including sensor networks and RFID into meaningful and actionable business information and dashboards in real-time. Our solutions enable a wide variety of applications where there is an urgent need to sense and respond in real-time to critical and dynamic situations and environments across a number of industries and sectors.
As we are at the leading edge of software development we have used our accountants Armstrong Watson to assist us with applying for R&D Tax Credits. Armstrong Watson have been an excellent and well informed adviser for this potentially tricky and complex subject. Nigel Holmes has extensive experience of this area and with Nigel’s essential support we have managed to claim back very valuable amounts.'