Following changes to the Finance Act 2006, all companies are required to finalise their Research & Development (R&D) tax credit claims by 31 March 2008, for the periods 1 April 2002 - 31 March 2006. After the end of March, no claims can be made for qualifying R&D expenditure incurred before 1 April 2006. The time limit for a claim to be made is now two years from the end of the accounting period in which the expenditure was incurred.
The deadline is fast approaching and you should contact your tax accountants if you believe that you should be making, amending or withdrawing a claim for R&D expenditure before 31 March 2006.
Do you think you need to make a claim? Our experts in taxation have put together a brief analysis of R&D tax credits and how companies can benefit.
The Research & Development (R&D) tax credits help companies to invest more in R&D either by reducing a company's tax bill or, for some small or medium sized companies (SMEs) not in profit, by providing a cash sum. The R&D tax credits are available to companies throughout the UK.
Many UK companies still miss out on this bonus from HM Revenue & Customs. They do not appreciate that they are performing R&D for which they can claim - or that the claiming process can be straightforward.
A basic definition of qualifying R&D is "work to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology". Advances include new or improved products, processes and services. If it's obvious to a professional how to do something, doing it isn't R&D. If there is a 'non-obvious' scientific or technological problem around how to do something, then doing it is probably R&D.
All companies with qualifying spending over £10,000 a year on R&D are entitled to a deduction when calculating their taxable profits of
- 150% of qualifying expenditure for SMEs, or
- 125% of qualifying expenditure for larger companies.
These deductions will reduce the company's UK corporation tax bill accordingly.
Companies can claim R&D tax credits for their revenue expenditure on:
- employing staff directly and actively engaged in carrying out R&D,
- paying a staff provider for staff provided to the company who are directly and actively engaged in carrying out R&D,
- consumable or transformable materials used directly in carrying out R&D (broadly, physical materials which are consumed in the R&D), and
- power, water, fuel and computer software used directly in carrying out R&D.
Capital expenditure is not eligible for the credit, but may be covered by 100% capital allowances (Research & Development Allowances) instead.