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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 (130% from 1 April 2015), i.e. for every £1 qualifying spend the taxable profit is decreased by or tax loss increased by a further £1.25 (£1.30 from 1 April 2015). For the Large Scheme, the enhanced relief is 30%, although this is being phased out in favour of an “Above the Line” tax credit system which can give rise to a repayable credit to loss making companies. This will be of benefit to SME companies claiming under the large scheme due to the receipt of state aid grant funding.
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. We regularly write articles and speak at seminars, and assisted HM Treasury with national policy consultations.
To see some of our R&D case studies, click on the links below:
James Cropper PLC
James Cropper creates some of the world’s most distinctive and technically advanced paper products, using materials from cotton and wood to carbon fibre. We support industries from packaging to inkjet media and aerospace with products that are at the cutting edge of performance.
- Specialist paper and nonwoven materials group with a turnover of £85M ($140M)
- A 6th generation family business started in 1845
- Continuous investment in equipment
- Over 500 Employees
- Exporting to over 50 countries
- Experts in low volume manufacture of deep coloured papers and boards
- Innovative manufacturer of high performance nonwoven advanced materials
Armstrong Watson have a visible presence in the R&D tax scene in the North West, we benefit from informative newsletters, articles in magazines, and talks at networking events. I found it easy to approach Armstrong Watson and sound out ideas. It was useful to explore ways in which we could benefit from Armstrong Watson’s expertise and administrative support in claiming for R&D.
Our Engineers, Technical Teams, Project Managers, Research Scientists, Laboratory Assistants and Operation Managers focus on the business and routes to drive growth and profitability. Armstrong Watson provide administrative support, subject matter expertise and credibility to our claims. For Armstrong Watson do this successfully they have to understand our business, and optimise what we can simply claim, providing the clarity and confidence with minimum disruption to the business. Armstrong Watson is a natural choice for James Cropper.
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.'
U2T Photonics UK Ltd:
In developing our business, to provide high speed devices for fibre-optics systems at the limit of technology today, u2t Photonics UK has needed to have a tight rein on the financial management of the company while we are focused on the technical and business challenges. For financial support at u2t, we have relied on Armstrong Watson to provide sound financial advice but also more practical help where, for example, they have taken tasks on to allow us to get on with our main job. Responses to questions have been dealt with in an accurate and extremely timely manner which is important in a small technology business. At an early stage in the life cycle of a company it is particularly important that the development costs are well managed. Armstrong Watson educated us on the options for managing our tax affairs and ensured we made the most of tax measures which support small and medium sized enterprises. This most especially applies to the use of the tax credit offer from government which allows us to keep tight controls on our R&D costs. In summary we have been delighted with the support, interaction and responsiveness which we experienced with Armstrong Watson, right from our first engagement with them four years ago.
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.'
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.'