Newspaper article Evening Gazette (Middlesbrough, England)

In the Know

Newspaper article Evening Gazette (Middlesbrough, England)

In the Know

Article excerpt

Byline: Martin Barber, Vantis Group

If you are a small company engaged in research and development and have fewer than ten employees, you are least likely to be taking advantage of a tax relief that will either reduce your tax bill or, if you have losses in the relevant accounting period, allow you to claim a cash sum from Revenue & Customs.

Research and Development tax credits were introduced to promote investment in innovation.

They are only available to companies and there are actually two schemes - one for small and medium sized companies, as defined by the European Commission, and one for larger companies. (A further incentive is that you may also be able to claim R&D capital allowances. Further details of this can be found in HMRC's Capital Allowances Manual.)

Under their scheme, SMEs can deduct 150% of qualifying R&D expenditure when calculating their profits for tax purposes, while larger companies can deduct only 125%.

SMEs - but not larger companies - can also, in certain circumstances, surrender this relief and claim a pounds 24 cash payment for every pounds 100 of qualifying expenditure. SMEs can also claim for expenditure on sub-contracted R&D, while larger companies can only claim on expenditure related to R&D it carries out itself.

Two other main differences are that SMEs' claims may be reduced if their R&D project has been supported by a grant and they must own the intellectual property arising from the R&D.

Research and development is defined for tax purposes in Section 837A Income and Corporation Taxes Act, which refers to the definition in the Statement of Standard Accounting Practice (SSAP) 13. This definition is then modified by guidelines, which have legal force.

The first step is for the company to determine if the work they are carrying out is classed as R&D for tax purposes. …

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