R&D Tax Credits

At Ellis Lloyd Jones we understand the importance of innovation for businesses to prosper. Because of this we offer a comprehensive R&D tax credit claim and advice service.

Many firms who invest in innovative products either don’t realise the tax breaks available to them, or are vaguely aware of them but are put off by their perceived complexity. Often, when discussing R&D with clients we will be greeted with a comment like “we couldn’t possibly qualify for that, it’s only for big pharmaceutical companies” - Sound Familiar? Well, nothing could be further from the truth!

According to government statistics by March 2007 over 36,000 claims had been made, over 30,000 of which were made under the SME scheme and over 6,000 of which were made under the large scheme, amounting to £3 billion of support claimed through both schemes.

What is R&D relief?

R&D tax relief, or as it is more commonly called R&D tax credits, reduces your taxable profits or can increase your taxable losses. This can lead to either a reduction in your Corporation Tax liability or cash back via a payable tax credit from the Government.

Who can qualify?

Limited companies that fall into two categories: Small and Medium Sized Entities (SMEs) or large companies.

If you qualify you should be able to answer these two questions:

  • Are you trying to do something that involves you having to develop scientific or technological knowledge that isn’t commonly available? (For example, creating or appreciably improving a product, process or service can sometimes require you to develop this sort of know-how – but being innovative in a commercial sense or new to you isn’t enough on its own.)
  • What are the scientific or technological challenges you’ve had to overcome as part of this work? (These have to be uncertainties that competent professionals can’t readily resolve, and where solutions aren’t common knowledge.)

Basic features of the two schemes

SME scheme

Large company scheme

150% rate of enhanced deduction to 31 July 2008 and a 175% rate of enhanced deduction thereafter

125% rate of enhanced deduction to 31 March 2008 and a 130% rate of enhanced deduction thereafter

Payable credit of up to £24 for every £100 of qualifying expenditure on R&D to 31 July 2008 and of up to £24.50 for every £100 thereafter

No payable credit

Company can claim for expenditure on R&D it sub-contracts to others

Company can only claim for expenditure on R&D it carries out itself, unless it sub-contracts R&D to certain qualifying bodies, individuals or partnerships of individuals

Company cannot claim for contributions to independent research

Company can claim for contributions to independent research

Claim can be reduced if the R&D project is subsidised or a grant is received in respect of it

No reduction for grant or subsidy

Company must own the intellectual property arising out of the R&D

Company need not own the intellectual property arising out of the R&D

Relief is given by enhancing the costs incurred when undertaking R&D work. Here are some of the eligible costs:

  • Staffing costs
  • Paying an external staff provider for staff engaged in R&D work
  • Materials, water, fuel and power for R&D
  • Software directly used in the R&D
  • Subcontracting out R&D activities

These costs can be apportioned where they do not wholly relate to R&D. There must be annual qualifying R&D expenditure of at least £10,000 in order for a claim to be made.

How long do I have to claim?

Claims must be made by the first anniversary of the Corporation Tax filing deadline – i.e. normally 2 years from the end of the accounting period.

What we do

We can help you with your claim to any degree you feel is necessary, from some general advice and feedback to preparing the full claim for you on a one off or ongoing basis. We can work alongside your existing accountant and provide them with the necessary information to add to your Corporation Tax return submission.

We offer flexible fee structures including fixed quotes and no-win no fee.

Please feel free to contact us for a FREE no obligation consultation.

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