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R&D

Autumn Statement & spending review – R&D relief and spending

Autumn Statement & spending review – R&D relief and spending

The press headlines are focused on the personal tax credits and how the cuts have been shelved, with the new forecast from the Office for Budget Responsibility forecasting sufficient extra income to persuade the austerity to look elsewhere and save some political face.

Conspicuous by its absence though was mention of the R&D tax credits and relief. Having received a boost in the last budget announcement they were left well alone in the review, and remain a strong and highly effective incentive for technically minded companies. When done professionally they can reduce tax bills, provide cash from loss and allow greater investment in new development work. Ask us how we can help you access it.

A brief summary of the increases in R&D spending announced

·      Science resource funding to rise in real terms to £4.7 bilion per year for the rest of the parliament.

·      A new body is planned to be introduced, called Research UK. This will work strategically across the seven Research Councils (science focused funding and steering bodies), taking a longer term view. Innovate UK helps commercialise technology; this body will be incorporated into Research UK but still exist.

·      There is already a government commitment to spend to build the UK’s research base, to the tune of £6.9 billion between 2015-2021. Around £150 million (total capital and resource) will launch a competition for a Dementia Institute, to build on the UK’s strengths in medical research.

·      The “Northern Powerhouse” gets its own investment fund of £400 million to invest in smaller businesses. The Enterprise Zones programme for the Northern Powerhouse will also be doubled in size with 7 new zones and 2 extended. The government will also be providing £50 million for 2 new agricultural technology centres in York for the food and farming supply chain.

·      Good news for the north continues, with £15 million of funding to support further Northern Powerhouse trade missions including to key emerging economies, and £7 million for a “Northern Powerhouse Investment Taskforce”, to bring “the authorities and businesses of the North together to present a single internationally competitive offer to the world.”

·      Over £130 million capital will be invested in Department for Environment, Food and Rural Affairs’ (DEFRA) science facilities, with £5 million specifically to further improve the HQ of the Centre for Environment, Fisheries and Aquaculture Science following its 5 year renovation.

 

The complete statement:  https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/479749/52229_Blue_Book_PU1865_Web_Accessible.pdf

 

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Why not find out more about R&D Tax Relief on our blog

 

 

Research and Development thrives with R&D tax credit claims up by nearly 25%

Research and Development thrives with R&D tax credit claims up by nearly 25%

The heartland of UK industry is the SME, and latest government data proves just how much technology development is still performed in the UK. The government’s R&D tax relief is aimed squarely at companies developing new technology, rewarding them with tax breaks for the technological risks they take, from developing new farm equipment to blue sky biotech.

R&D tax claims have risen almost a quarter in the last year from around 16,000 claimant companies to 20,000, with claim values totaling £350m. Since 2000, 120,000 claimants have claimed £11.4 billion in tax relief.

Small and medium sized businesses have been the star performers of the UK economy in recent months with the majority of these claims made by SMEs, which rose by 23% and large companies rising 4%. 

The rise was seen across the country but with London, the east and southeast continuing to be the highest areas for claims at a total of 46%of all claims SMEs from the rest of the UK should really look into the R&D tax relief as many are missing out. A typical claim value is around 20p in every pound spent on development, usually repaid in cash by HMRC.

As the popularity of R&D tax claims rise, the chancellor took the politiucal opportunity last year to further boost innovation by announcing an increase in R&D tax credits to 230%. This means that for every £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by an additional £130 on top of the £100 spent - which is great news for business.

 

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NOTES:

SME –a Small to Medium sized Enterprise that is; less than 500 staff AND up to €100 m turnover OR up to €86 m balance sheet value

 

Why not check out our previous R&D blog post about how to prepare for a future claim

R&D Tax Relief: Is R&D spending a victim of austerity?

R&D Tax Relief: Is R&D spending a victim of austerity?

Is R&D spending a victim of austerity?

The Office for National Statistics recently released some data about government spending on R&D (here) and we’ve been having a closer look at it. If you were to ask a UK manufacturer if it’s up or down you could expect a negative answer, as budgets are slashed further each year in this age of austerity. The reality is a bit more complicated. UK public spend on Science, Engineering and Technology in 2013 (the last year we have data for) was £10.9 billion, an increase of 9% versus 2012 and on the face of it good news. It also reverses the downward trend in R&D expenditure that’s been there since 2009, but it’s still far from the pre-recession peak. There are winners and losers within these figures though, so let’s take a quick look at them.

Research Councils stay steady over a longer period

The government funded Research Councils invest in research, covering academic disciplines from medical and biological sciences to astronomy, physics, chemistry and engineering, social sciences, economics, environmental sciences and the arts and humanities. Their budget was increased for 2013, but when you take into account inflation it’s in real terms stayed at it’s 2008 level, following an increase from £2.5 billion to £3.4 billion between 2002 and 2008.  

University R&D spending

A similar story can be seen with UK higher education spending, with a slight increase from £2.1 billion in 2002 to £2.4 billion in 2013, again affected by inflation. The grassroots pressure group Science Is Vital says that the apparent rise is further misleading though, as the total figure includes an increase in capital spending but also a drop in cash funding for science projects.

Who lost out in R&D taxpayer spending?

There have been specific increases in expenditure from 2002, but the overall budget has stayed quite steady, so who has suffered? R&D in defence, dropping £2.1 billion since 2002. It’s subjective and controversial as to how defence R&D should be regarded, but it’s clear this is where the savings have been made. 

Our R&D spending versus our neighbours and competitors

Back to the bigger picture; the overall R&D figures put us in the position of spending the lowest proportion of our GDP on R&D of all the G8 countries (see below), with 0.5% spent, compared to an average of 0.8%, and this doesn’t compare favourably with our European competitors like Germany (0.89%) and France (0.82%) or our cousins across the pond with their 0.86% spend on R&D. We believe research and development is vital to the UK’s future (it’s why we do what we do) and while it’s great to see R&D spending starting to increase again, more is needed to keep the UK competitive.

 

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1:  UK Government Expenditure on Science, Engineering and Technology, 2013

2:  The G8 is: Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom and the United States

 

R&D Tax Relief: Dividends, salary, and bonuses

R&D Tax Relief: Dividends, salary, and bonuses

Dividends, salary, and bonuses – what can I claim in my R&D tax relief?

You can claim a range of payments for you and your staff, but there are some exceptions.

When you make a claim for tax relief via the Research and Development scheme you are claiming on behalf of the company, and the costs that it has borne in undertaking the R&D.

Some of these are obvious – like the parts used in making a prototype. Some are less so, like the complex subcontracting rules (see my last blog), or types of pay and how much of those costs to add to the claim. 

Full-time salaried staff and their eligibility

You’ll be able to claim on the taxable salary of someone working on the R&D, plus anything that the company pays into a pension for that employee.

You can also claim the Employer’s National Insurance contributions, but you can’t claim the employee’s N.I. or their personal contributions to their pension. You can claim bonuses too, as they are taxable. 

Expenses and Benefits In Kind

This area is a surprising one, as you can’t claim expenses paid for by a company credit card, but you can claim for expenses paid by an employee and then repaid by the company to the employee.

Don’t forget, of course, that the expenses have to be directly related to the R&D itself; as an example, a market research trip to a trade show is not R&D. Non-cash Benefits In Kind (like cars or accommodation) cannot be claimed.

Directors pay and the R&D claim

Directors paid by salary fall under the same category as other full-time salaried staff, with the same restrictions. Dividends, however, cannot be claimed, and this can impact on claims, especially for smaller companies.  

How much of each person’s costs can I claim? 

This isn’t an easy question to answer, sorry! It will vary based the involvement of each person.

Interested in talking to a R&D Tax Advisor about your potential claim?

Book a free consultation with us, we live and breath R&D and we've 17 years of expertise, with a 100% success rate!

 

R&D Tax Relief: Grant Funding

R&D Tax Relief: Grant Funding

Does grant funding stop me being able to claim R&D tax credits? 

No, it doesn't, you can still claim R&D relief and tax credits. What it does do is affect what and how you can claim, and complicates the claim process, which is easy to get wrong. R&D driven companies are often recipients of grant funding, and it's still worth doing both. I'll briefly cover the main ways they interact, but individual situations are usually more complex and need dealing with on a case by case basis. 

Who gave you the grant?

Let's start with the assumption you are an SME (definition below), so you are claiming the higher level of R&D enhancement of 130% (more here if you need it). If your grant is from a UK source it's highly likely it's classified as "State Aid", and this prevents you from claiming at the SME rate. You can still claim though! The reasons are complicated, but you can claim R&D relief under the Large Company part of the R&D relief scheme. The Large Company enhancement rate is only 30%, but bear in mind that you've already used the grant to reduce your costs, and you'll be claiming on the entire cost of the project, not just your own contribution to its costs. For this reason it's worth considering using a grant (if you accept it's own potential pitfalls) along with claiming R&D relief.

Europeans are different

Your grant funding might come from a European source, where many of the grants awarded are not classified as "State Aid", and the way you claim changes again. The "State Aid" rules are there to ensure as level a playing field as possible across member states, but funding from the EU itself often isn't subjected to this. In this situation you claim the funded part under the Large Company part, but your own expenditure is under the SME part of the scheme. Your grant provider will clarify whether your funding counts as State Aid or not, or we can help.

All or nothing? 

So you've had grant funding, and you can claim R&D relief, and the good news continues. You might think that if you've got "State Aid" grant funding your entire R&D claim will be under the Large Company scheme. It's actually possible to claim both SME and Large Company relief in the same accounting period, as long as the funded and unfunded work are in separate projects and identified carefully.

Can I get paid now? 

You might have heard that companies claiming under the Large Company scheme can only save tax in the future through carrying loss forward, but actually since April 2013 you can get cash back with that scheme too. Yes, this is a summary of the highest level, so please give us a call if you think this will apply to you, or in fact if you have any questions about anything I've written.

 

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NOTES:

SME –a Small to Medium sized Enterprise that is; less than 500 staff AND up to €100 m turnover OR up to €86 m balance sheet value 

Enhancement values – when you worked out your profit you recorded your costs at what they cost you, 100%. For SMEs you can add another 130% to your R&D costs, and for Large Companies an extra 30%. These act to reduce your taxable profit and save you tax….. 

 

See our previous blog

 

R&D Tax Relief: An Introduction

R&D Tax Relief: An Introduction

Is your work eligible for R&D tax relief?

You may have heard about the government’s R&D tax credits scheme and wondered if you were eligible for it. Before you spend too much time on it, you can figure out quickly if it's likely that you are eligible.

How advanced does my work have to be?

If you are doing gene therapy then great, you can claim! Most of us aren't though, and you might think that working in packaging, or in moving things about, or in metalwork or software means that you can't claim. We've claimed for all of these, and more.

Think about your company's working week, and think about how much of the time you are solving problems. If you are scratching your head over problems on a regular basis then it's worth looking at the scheme. 

Is your work creative or technical?

The legislation makes a clear distinction (along with a long, long list of other areas) over the difference between creative and technical work. Highly skilled craftsmen making luxury leather goods are most likely not undertaking R&D, but highly skilled engineers figuring out how to achieve a very high tolerance result could well be.

Can you claim if you are working for other people?

You might think that solving problems for other people might mean you are ineligible to claim tax relief on your work. Though the details can be tricky, working for another company does not necessarily stop you claiming your own tax relief.

Do you claim yourself or use a specialist?

These are just a few of the eligibility criteria that you have to know about, and whilst they are the most important when it comes to looking at the work you are doing there are many more, and that's before the tax computations side. Learning about all the detail takes a long time, and employing a specialist like us is often a better balance of time vs reward.

 

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Budget 2015

Budget 2015

Each successive budget has made R&D tax credits more rewarding for companies engaging in eligible work. Budget 2015 follows this trend giving further support to the measures introduced last autumn to strengthen R&D tax relief. 

The focus in this budget is encouraging small companies to claim for the first time with the introduction of Voluntary Advanced Assurances. 

  • Small companies will be able to seek pre-approval for claims for a three year period
  • New guidelines for small companies will be published 
  • A two year publicity strategy has been announced to raise awareness of R&D tax relief with a road map for further development due in the summer
  • From 2016 the time taken to process R&D tax credit claims will be reduced 

We're excited to see increased incentives for innovation in business. The measures demonstrate Government's continuing commitment and investment in the mechanism as a support to UK companies. 

In their Small Business Consultation document from January 2015 HMRC recognise the role of intermediary R&D tax specialists to provide advice and assist companies with their claims. To find out how we can help support your business contact our R&D tax team. 

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