This document discusses R&D tax incentives and reliefs for companies in the UK, including schemes for small and medium enterprises. It provides details on qualifying criteria for SME status, how enhanced deductions or tax credits for R&D expenditures are calculated, eligible R&D costs, exclusions, rules around state aid grants, the claims process, and introduces the new Patent Box incentive effective from 2013.

1. Incentives and Reliefs R&D Patent Box

2. R&D Tax Credits
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Introduced in 2000, modified over the years
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Applies only to companies – not individuals and partnerships
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Two schemes
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Small and medium-sized enterprises (SMEs)
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Large enterprises
This talk will concentrate on the rules for SMEs

3. Large, Small, Medium Enterprises
For R&D relief purposes only
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If Enterprise has 500 or more employees --- it is large no further checks required
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If Enterprise has fewer than 500 employees need to look at turnover and gross assets
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Turnover more than €100 million and Balance Sheet total more than € 86 million --- it is large
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Otherwise, it is probably a SME

4. R&D Tax Reliefs – what does the company receive?
A Ltd is a small company. Its accounting period ended 31 March 2014. It incurs £100,000 on qualifying R&D This can be enhanced by an additional 125% In calculating its taxable profits it can claim an additional £125,000 deduction reducing its corporation tax bill OR If it is loss making, a tax credit can be claimed. 11% of total enhanced R&D expenditure (or taxable loss if less) In this case 11% x £225,000 = £24,750 repayment

5. What is R&D for tax purposes
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Statutory definition, but based on guidelines produced by BIS (Department for Business Innovation and Skills)
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R&D takes place when a project seeks to achieve an advance in science or technology. It must be an overall advance, not just within the claimant company
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Uncertainties that can be readily resolved by a competent professional working in the field are not scientific or technological uncertainties.

6. What can be claimed?
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The staffing costs of those actually doing the R&D
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Certain staffing costs of those supporting the R&D project
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Consumable Items
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Software
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Subcontracted R&D costs
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Cost of externally provided workers (EPW)
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Capital Expenditure and Allowances – the RDA scheme

7. What can’t be claimed
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Non R&D costs (general administrative and secretarial costs; general wages not specific to R&D: production costs; marketing costs)
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Most consultancy payments
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For SMEs expenditure covered by a grant (see next slide)

8. Grants and SMEs
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If a grant is received for a project, it is necessary to determine whether it is a Notified State Aid
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Receipt of a Notified State Aid affects all of a project’s costs; other grants and subsidies affect only the amount of the costs subsidised
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If you can’t claim under the SME scheme – may be able to under the Large scheme (even if you are a SME)
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From 1 April 2013 a tax credit may be available under the large scheme

9. Making a Claim
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Time Limits – 2 years from the end of the accounting period. We rarely accept late claims
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It helps us to understand your claim if you include a summary of R&D undertaken – for each project and relevant to year of claim
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Breakdown of expenses – salaries; consumables; software; subcontractors; EPWs – and additional information for salaries/subcontractors/EPW

10. Patent Box from 1 April 2013
Provides an additional incentive for UK companies to:
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retain and commercialise existing patents and to develop new innovative patented products
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locate the high-value jobs associated with the development, manufacture and exploitation of patents in the UK
How?
–Income derived from patents attracts a lower rate of corporation tax (10% by 2017)

11. And Finally….
Remember that the Incentive and Relief teams are there to help you with your claim Online guidance available from HMRC website If you are making a claim for a cash tax credit we will endeavour to pay it within 28 days or tell you why we cannot make the payment

12. Any Questions?