This tax relief can be given either as a deducation against profits, or, if a business is a new enterprise and is loss making, this can take the form of a very useful cash refund.
What is potentially available for companies?
For an SME spending £100,000 of their own money on qualifying R&D, it would be able to offset 225% of the cost against profits. This results in a tax deduction of £225,000 and tax saved of £45,000.
If a business does not make a profit in year 1, it may be able to claim a cash refund. On £100,000 of expenditure this would amount to a refund of £11,000 assuming it has paid sufficient PAYE & NI during the previous year.
How many claims have been made?
HMRC'S statistics for 2012 showed just under 10,000 SMEs made an R&D claim, with the average claim resulting in tax savings of £43,000.
What is qualifying R&D?
Qualifying R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology, resulting in an advancement in the industry overall knowledge and capabilities. This advancement should be done for the benefit of all companies and not just the one who carried out the research.
What costs are eligible to claim against?
Eligible costs include staff salaries, national insurance, contributions and pension costs, testing, overheads such as heat and light and also some sub-contractors costs.
What is the criteria for subsea tax incentives?
According to KPMG, The company must be within charge to UK corporation tax. If your an SME, the company must be a going concern.
For qualifying expenditure, the company must claim with tax return for period (2 year time limit) and understand the expenditure is deductible in the same period, revenue expenditure is for tax purposes and it relates to a trade carried on by the company. There may be restrictions on contracting R&D activities.
Who is eligible?
As well as SMEs with fewer than 500 employees or a turnover of €100 million or less, linked enterprises and partner enterprises are welcome.
Enterprises are linked where a control relationship exists. The business should have the majority of the shareholders' or members' voting rights, the right to appoint or remove a majority of the members of the administrative, management or supervisory body, and have the right to exercise a dominant influence over another enterprise.
Eligible for tax incentives are enterprises partnered where there is a holding 25% or more capital of the voting rights. Data should also be aggregate in proportion to the holding.
Public investment corporations, venture capital companies, universities, non-for-profit research centres, regional development funds and autonomous local authorities with an annual budget of less than 5,000 inhabitants are considered 'exempt' from being labeled a partnered enterprise. For these, no data needs to be aggregated.
The view from the SME...
Paddy Collins, CEO of Aubin said, "We devote around 25% of our workforce to developing chemistry based engineering solutions for the global oil and gas sector. The availability of R&D tax credits is welcome and makes the UK a good place to base our research activities."
Ryan Strachan, CFO of SPEX said, "We undertake R&D activities for new proprietary SPEX solutions, also working with our clients to progress their innovations. R&D tax credits are therefore an important aspect of our business which help reduce the overall cost of projects and assist with cash flow."
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