The slides for a seminar held by Coadec and Magma on R&D tax credits.

3.  HMRC defines R&D activities as those which:
“Directly contribute to achieving an advance in science or technology
through the resolution of scientific or technological uncertainties”
 An advance in technology does not necessarily mean ground
breaking, innovative or novel work. The changes to a product
may qualify if a company is making something:
 cheaper
 faster
 smaller
 larger
 longer
 more efficient

4.  HMRC look at four key areas when ascertaining whether a company has
undertaken R&D:
1. Whether there has been a scientific or technological advance
2. What the uncertainties are
3. How the uncertainties were overcome
4. Whether the knowledge being sought was readily deductible for a
competent professional

5.  Transferring a desktop software package to a cloud based system
 Developing an online fully integrated apartment letting and management
system
 Creation of remote wireless EPOS system
 In-house development of stock management/EPOS system
 Development of new formula for slug pellets due to a change in legislation
 Development of bespoke manufacturing machinery for the manufacture of
chemicals
 Development of bespoke laser modeling products

6.  SME scheme:
 Companies with turnover up to €100 million
 Balance sheet up to €86 million
 Less than 250 employees
 225% of qualifying costs
 If loss making a credit of 11% is available
 Subcontractors under large scheme
 Large company scheme:
 130% of qualifying costs

7.  Staff costs (including employers National Insurance Contributions)
 External workers and subcontractors (65% restriction)
 Consumable or transformable materials
 Payments made to external workers
 Computer software licences and fees directly attributable to the R&D
work
 Heat, light, power, water and fuel used directly in carrying out R&D
 Where capital assets are acquired that are used solely for R&D
purposes, the costs of these assets will qualify for capital allowances at a
rate of 100%

8.  Registering as a limited company
 Payment of salary to Directors of business (following changes on 1 April
2012)
 2013/14 –
 NIC’s £7,748
 Income Tax £9,440
 Corporation tax deductible
 Post to Directors’ loan account if no cash available

9.  EXAMPLE:
 New start up company with two shareholders/directors both
undertaking R&D in company. Salary paid to both of £7,700 per
annum, company not yet making sales and so loss making:
Total salaries = £15,400
Uplift for R&D claim = £34,650
11% surrendered credit = £3,811.50
 HMRC pay the company £3,811.50 for R&D work, no personal or NIC
liability arises, individual has loan account upon which to draw down on
in the future tax free!

10.  Made via corporation tax computation
 Report should be produced to support claim in case of HMRC enquiry
 Can claim for previous 2 accounting periods
 Keeping of projects sheets will aid claim process

11. A B C
Profit of company £300 £300 £300
R&D expenditure - £100 £300
Enhanced relief - £125 £375
Adjusted profit £300 £175 (£75)
Corporation tax £60 £35 (£8)
Tax saving - £25 £68

12.  Patent Box
 Providing 10% tax rate to companies obtaining an income from
patents
 Effective from April 2013
 ‘Above the line’ R&D Tax Credit Scheme

14. Magma is a leading independent firm of Chartered Accountants and Chartered Tax
Advisers, providing a wide range of professional advisory services to owner managed businesses
and private individuals via six integrated service areas: Audit and Assurance, Business
Services, Corporate Finance, Corporate and Business Tax, Private Client Tax and Wealth
Management.
Extensive experience in advising companies and individuals on Share Option Schemes and
Research and Development Tax Reliefs in various sectors including
retail, engineering, technology, property, manufacturing and IT.

15. Ross Northall – Senior Tax
Consultant
T: 01788 539 000
M: 07809 549 194
E: ross.northall@magma.co.uk
W: www.magma.co.uk

16. This document has been prepared as a general high level summary of some points of the R&D
tax relief legislation. It has been written for information purposes, should not be considered to
be exhaustive and should not be relied upon or be a substitute for professional advice which
should be sought. No liability or responsibility is accepted for loss or damage incurred as a
result of acting or refraining from acting upon anything contained in or omitted from this
document. This document does not constitute taxation, legal, financial or investment advice.