R&D Tax Credit has been introduced as an encouragement tool aimed at (SME) Limited companies to stimulate scientific innovation and advancement giving rise to economic boost with an uplift in living standard of society at large, accountants in Windsor learns:
So how does it all works. Are there any inherent difficulties in the whole process from start to finish for small enterprises? Accountants in Slough explores all the relevant areas making it easy to understand with valuable insight for the first-time applicants.
For this purpose, an SME is the one which fits the below criteria as is recognised by UK authorities:
To be eligible, besides company’s size the organisation must also engage in activities with a view to achieve advancement in science & technology and is spending financial resources on those projects.
Example of R&D may include significant enhancement in existing technology or such progress/achievement which has not been claimed yet and demonstration be given if needed e.g. improving the efficiency of a solar cell, developing a unique software or a ultra-efficient process resulting in enhanced productivity.
In stricter term a qualifying R&D activity must also be treated in line with UK accounting GAAP and fall in line with the definition as described by the department for business, innovation & skills (BIS).
Windsor accountants note the general guidance issued by HMRC on the type of expenditure which may qualify the relief for R&D projects. Such as:
Where any part of R&D work is subcontracted by a large organisation unless it is to an individual or a partnership (of individuals) or a qualifying body (charity, research institution, health body or a higher educational organisation), such costs will not qualify for R&D relief, so will be the telecoms and other data costs for SME.
At present SME attracts an enhanced R&D tax credit relief at 130% of the qualifying expenditure. This is after a company has already claimed their normal corporation tax relief on qualifying expenditure at the prevalent corporation tax rate which stands at 195 now a day.
Accountants in Slough reckons that such a generous relief may well push some companies into an accounting loss situation with two possible ways to deal with it. A company may either carry forward the generated loss to offset against its future profits or settle for a payable tax credit at 14.5%.
The following example will help understand above loss treatment in real world scenario.
Let say an eligible organisation undertook some R&D qualifying activity making a profit before tax and R&D tax relief of £50,000 in the year to 31st March 2018 with qualifying R&D outlay of £80,000.
The company as per UK GAAP has already deducted £80k from the above £50k profit. Now by claiming the R&D relief the company’s overall position will be:
Profit before R&D claim £50,000
R&D relief @130% £104,000
Loss after claim (£54,000)
Option A: Carry forward loss to be relieved at 19% C.T. £10,260
Option B: Direct Cash Credit @14.5% £7,830
Further to above R&D tax credit relief to an SME, a Capital Allowance of 100% on qualifying R&D Capital expenditure items may also be claimed.
Large companies (see definition) are not eligible for enhanced R&D tax credit relief, they instead can make claim under research & development expenditure credit (RDEC) @ 11% of R&D expenditure which is offset against their corporation tax charge.
An organisation in the receipt of a government grant can also apply for R&D tax credit. The amount of relief available may vary according to the volume of government funding already been received.
In preparing their first claim, Windsor accountants advise SME that they take extra care for a smooth processing by HMRC and an eventual successful relief grant.
A joint effort by R&D management and finance section can save valuable time. That’s where Accounttax can make you stand out from the bunch by ensuring a swift and maximum availability of the relief from start to finish.
Normally R&D tax credit claims can be filed within two years of the accounting period in which you have incurred the qualifying R&D expenditure. E.g. for a qualifying project started between 1/04/2016 to 31/03/2017 the final date of claim submission will be 31/03/2019.
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