Technology Law Solutions

Research and Development Tax Credit Doubled

For any company incurring qualifying Research and Development tax credits will now be able to claim 200% of costs incurred.

Any unrelieved loss to the company could be surrendered for a cash rebate at 14% of the claim.

The rule limiting a company's payable R&D tax credit to the amount of PAYE and national insurance contributions (NICs) it pays will be abolished from April 2012. This will benefit businesses which formerly did not have enough NIC and PAYE to receive the R&D credit.

The current 10,000 pounds minimum expenditure condition is abolished for all companies from April 2012.

Eligibility ; Any company which has scientific, technical, software or design related employees, or is developing new or improved processes, products or material or gaining knowledge in these areas, or otherwise funds R&D, including through the use of third party developers.

R&D is any advance sought in science or technology, by new or appreciably improved or addition of knowledge to industry.

The use of existing processes or material does not prohibit R&D, what is decisive is the intention and activities involved in achieving, or not achieving the goal

From 1st April 2012 the credit will rise to 225%. In combination with a reduction in the rates of Corporation Tax, the revised benefits for companies performing R&D are shown below with SMEs benefits rising fractionally to an expected 25% of R&D expenditure from 1st April 2012

Changes will be made to the rules governing the provision of relief for work done by subcontractors under the large company scheme. When the 200% enhanced deduction rate takes effect, the rate at which losses can surrendered will be reduced initially from 14% to 12.5% and then to a lower figure when the rate becomes 225%.

                                                                    Currently              From 01.04.2011      From 01.04.2012
Benefit                                                          175% R&D Rate    200% R&D Rate        225% R&D Rate
Loss-making SME (Current cashback 14%)       24.5%
Loss-making SME (2011 cashback 12.5%)                                   25%
Loss-making SME (2012 cashback 10%)                                                                     25%
SME 21% Tax-payer                                       15.75%
SME 20% Tax-payer                                                                 20%                         25%
SME 28% Tax-payer                                       21%
SME 26% Tax-payer (2011)                                                      26%
SME 25% Tax-payer (2012)                                                                                      31.25%

Criteria for SME scheme :
      Less than 500 employees
      Turnover = <100m euros and or balance sheet total = <86m euros
      Research & Development Tax Relief - Eligible Expenditure:

Staff and management outlay
      Employing external providers or Subcontract costs
      Consumables and Materials consumed or transformed
      Use of IT (Software ) or other forms of technology
      Clinical Trials Volunteer

We work in association with specialist tax advisors who can analyse whether you are taking full advantage of your entitlement to R&D relief and assist with any HMRC claim applications. If would like to discuss whether you have any opportunities to optimise your tax position please contact Robert Marcus on 0207 989 0292 or rpamarcus@technologolylawsolutions.com