R&D investment can provide significant Corporation Tax relief. Large companies can claim 130% and SMES up to 225% of qualifying expenditure.
Whilst businesses and accountants are starting to become aware of the scheme’s benefits, the take up is still very low. The Chancellor recently enhanced the scheme to encourage take up Soapstone is making sure clients benefit.
There is a broad range of activity which qualifies and many businesses developing products and processes can make a claim. The relief is against revenue rather than capital costs but Soapstone can also assist with claiming R&D capital allowances.
Soapstone works alongside our clients’ technical and finance teams to maximise claims and ensure that eligible costs are captured as much as ineligible are excluded. We have found that this makes for a much easier process for both the client and HMRC and our understanding of the criteria means that the investigative burden (one of the key reasons clients do not apply) is much reduced, with the burden on Soapstone to bring the claim together.
Additionally, the Government’s Patent Box Scheme (coming into affect from April 2013) offers a 10% reduction in corporation tax.
(SME definitions for Tax purposes are different from that of Grants and are more generous with turnover levels up to €100m, a balance sheet of € 86m and up to 500 employees – double the EU definition).
Our service combines in-depth experience in technical, operational, financial and strategic functions to plug into our client’s team, meaning we speak the same language and then translate that into the criteria needed for the claim.
Our team works alongside the business during the entire process and builds the argument for the claim out of direct understanding of the company and its activity around innovation.
Qualifying Expenditure for R&D Tax Relief
Staff providers – as above but using an agency for technical/project staff.
Materials - consumable or transformable materials used directly in carrying out R&D. These are actual physical materials that are consumed in the R&D, and not things like telecommunication or data costs.
Payments to clinical trials volunteers - the cost of relevant payments to subjects of clinical trials.
Utilities - power, water, fuel used directly in carrying out R&D, but not things like telecommunication costs and data costs.
Software - computer software used directly in the R&D.
Subcontracted R&D expenditure – the SME Scheme allows 65% of such costs for the project. Large companies have very few subcontracted costs they can claim.
Typical Calculation of Relief – SME
R&D expenditure £20,000
R&D Relief £20,000 x 100% = £20,000
Normal taxable profit £50,000
Taxable profit less R&D Relief £50,000 – £20,000 = 30,000
Revised taxable profit £30,000
Example – R&D Relief for expenditure of £25,000 where the company has made a loss of £15,000
R&D expenditure £25,000
R&D Relief £25,000 x 100% = £25,000
Normal Trading Loss £15,000
Trading loss less enhanced by R&D Relief £15,000 – £25,000 = £40,000
Revised taxable profit £40,000
Typical Calculation of Relief – Large Company
R&D expenditure £1,000,000
R&D Relief £1,000,000 x 130% = £300,000
Profit before enhanced deduction £1,500,000
Taxable profit less R&D Relief £1,500,000 – £300,000 = £1,200,000
Corporation Tax @ 28% £336,000
Tax Saving £84,000