Research and Development Tax Reliefs for Limited Companies

What is Research and Development?

Research and Development (R&D) can be basically defined for tax relief purposes as:

• Seeking an advance in science OR technology.

• Activities undertaken which aim to achieve the advance by resolving scientific OR technological uncertainties. These activities do not have to be successful.

An advance in science or technology can be defined as:


• An advance in the overall knowledge OR capability including adaptation from another field.

If a particular advance has been made but details are not publically available, if for example it is a trade secret, then work to achieve the advance can still be an advance that qualifies as R&D for tax purposes. It could therefore be the case that two rival companies have developed virtually the same product independently of each other but both qualify for R&D tax relief.

Why is the Government promoting R&D tax relief and is there a time limit?

R&D tax relief was introduced many years ago but the current Government is heavily promoting the relief. Some commentators speculate that this is because they want to present the figures as part of their election manifesto but more likely it is because it wishes to reward innovation which bring jobs and growth to the UK economy.

It is not known how long the relief will be continue to be available but any removal of the relief would be extremely unpopular. However, you should make a claim as soon as possible just in case the worst comes to the worst. You only have a two year window to make a claim and you could be in a position to reclaim some tax that has already been paid. For instance, if your year end is 30 November, then you have until 30 November 2014 to make a claim for the year to 30 November 2012. This could mean that some of the tax paid on 1 September 2013, could be reclaimed.

The key is to call us today to ensure that a claim is made before the deadline.


If you would like to find out more or have any questions contact:

 
 
 
 
 
Peter Hogan
Tax Consultant


01325 349 700
 
Nicola Bellerby
Partner


Durham Office
0191 384 2244
 
Alan Moore
Partner


01325 349 700
 
 
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Scenario

You own an engineering business solving unique problems.

You are meeting with your accountants as your financial statements have been prepared.

You discuss the tax charge. They explain the reasons for the tax charge and you accept their reasoning. You ask them what can be done to reduce the tax bill next year and they mention the usual capital allowances, pension contributions, remuneration strategy, share schemes and so on. They hesitate but also mention “Research and Development” tax reliefs for advances in “Science and Technology.”

Questions

• When you hear the phrase “Research and Development” which part of the expression do you focus on?

• When you hear the phrase “Science and Technology” which part of the expression do you focus on?

Our experience

Undoubtedly many client’s focus on “research” and “science” and picture a laboratory full of scientists working on the latest ‘wonder’ drug rather than their own company. This leads them to dismiss a claim for research and development (R&D) tax reliefs as they don’t carry out the work that they imagine would qualify. Unfortunately, this prejudice could cost their company a significant amount of money.

The quality of the argument by the accountants, to pursue a claim for R&D tax relief, clearly depends upon the accountants knowledge.

It may be that the accountants have dismissed a claim before even speaking to you and if they do ask the question, they will make a note that you don’t think that you qualify, if you suggest that you don’t. They’ll then mention that they will see you in six months, if you’re lucky.

How are we different?

Luckily at Clive Owen LLP, we will explain that “it’s not just about the lab coats” and we focus on explaining the meaning behind R&D, the tax relief available, what legitimate planning can be done to increase reliefs, why the Government is keen for companies to claim the relief, the types of project that will qualify and so on.

We can also back up our claim as we, along with other Kreston International member firms, have saved client’s over £50m in tax by making R&D tax relief claims.