Rd Tax Relief Scheme Ppt 2009

R&D Tax Relief Scheme ‘ It was as true...as taxes is. And nothing’s truer than them.’ David Copperfield by Charles Dickens

Background on R&D Tax Relief

SME scheme introduced in April 2000.

Programme expanded to Large Companies in 200 2 .

To encourage the development of new and improved products and processes.

Responding to creation of similar programs in foreign countries (US, France, Spain, Canada).

Level of support ranges from 7½% to 24% of qualified expenditure s by way of tax reduction or credit .

Only available to registered companies.

Background on R&D Tax Relief

Program statistics (as of the end of 2005):

In 2006, ONLY 45% of eligible companies have filed a claim.

Location of company affects claim rate (low uptake in areas such as the Midlands, South West, and North East - cite lack of program awareness).

R&D Rules - General

To Qualify

Must be an incorporated business.

Must be subject to corporation tax.

R&D must relate to company’s trade or business.

Expenditures must be deductible in computing the profit of the company (exception for intangible assets).

Minimum spend annually must be more than ₤10,000.

SME vs. Large Company Scheme

Small-Medium sized Enterprises (SMEs): Post EU Prior EU

Approval Approval

Must have employees less than 500 250

AND

Meets one of the 2 following tests

1) Turnover less than €100m €50m

2) balance sheet total less than €86m €43m

Figures are aggregated for linked enterprises (Appendix C.1)

Large Company :

Is one that is not an SME

Note:

SME can elect to claim under LC scheme.

SME vs. Large Company Scheme *Note: R&D done under contract will likely not qualify. SME scheme Large company scheme 150% rate of enhanced deduction (175% Post EU enhancement) 125% rate of enhanced deduction 130% after April 1, 2008 Payable credit at £24 for every £100 of qualifying expenditure on R&D No payable credit Company can claim for expenditure on R&D it sub-contracts to others Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D in certain limited circumstances to certain entities (qualifying body or individual) Company cannot claim for contributions to independent research Company can claim for contributions to independent research Claim is reduced if the R&D project is subsidised or a grant is received in respect of it No reduction for grant or subsidy Company must own the intellectual property arising out of the R&D* Company need not own the intellectual property arising out of the R&D

What are the Benefits of Making an R&D Claim?

Examples of claims:

For every £ 100,000 a company spends on qualifying R&D expenditures:

An SME might recover between £9,000 and £24,000

A large company can recover £7,500.

What is an eligible R&D project ?

Technological uncertainty :

‘ knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field.’

Technological advance :

‘ an advance in overall knowledge or capability in field of science of technology.’

‘ an advance may have tangible consequences (new product or process) or intangible outcomes (new knowledge or cost improvements)

Systematic investigation:

‘ involves the use of a predetermined method for studying a specific topic, answering a specific question(s), testing a specific hypothesis(es), or developing theory.’

The R and D uncertainty loop

The 7 P’s

Problems

Patents

PhD / Professors

Pilot schemes

Prototypes

Process improvements

Modelling

Step changes in performance

Innovations / inventions

What are uncertainties?

Precision Reliability Achievability

Integrity Compatability Durability

Accuracy Longevity Serviceability

Practicality Integrity Efficiency

Unknown Repeatability Scalability

Effectiveness Sustainability Performance

SMEs

Staffing costs for R&D employees

Materials, water, fuel and power for R&D.

Software directly used in the R&D.

Subcontracting out R&D activities or paying an external staff provider for R&D.

Unconnected 65%

Connected –cost to connected company.

Large

Same as above except generally contractors are not eligible.

Can claim for contributions to independent research.

No reduction of expenditures for grants received.

Note: 1. Minimum annual R&D spend of ₤10,000 required.

2. Above expenditures must be deductible in computing the company's profit

for tax purposes in the accounting period. An exception exists for intangible

assets.

3. Payment of expenditures must be made before claim accepted.

What qualifying expenditures are eligible?

Examples of successful claims

Integration of software products

Colour changes in a plastic cap for a 5g water bottle

New welding techniques for railway lines

Air structures for refloating a 240m ship off Goa in India

New inspection techniques for fractures in glass bottles

Process changes for reducing the size of beefburgers

Filing Deadline

Claims must be filed within 2 years of the accounting period.

eg A company with a filing on 31 July 2009, can claim for FY07 (01 August 2006 – 31 July 2007)

Dealing with HMRC

Creation of 7 regional centres to specialise in assessing R&D claims mostly applies to SMEs:

Cambridge , Croydon , Leicester , Maidstone , Manchester , Southampton , Cardiff (covering Wales, Scotland and Northern Ireland) .

Services

Assess claim method and select either: i) the small and medium sized (SME) company or, ii) the large company method.

Identify eligible R&D projects.

Identify R&D costs and relate to eligible projects.

Prepare detailed R&D cost schedule and prepare document describing R&D projects, and how R&D projects meet the eligibility criteria.

Meet with client’s key scientific technical and financial personnel to review the R&D claim and complete RDP’s checklist to ensure the claim is maximized and complete.