f?The
UK has a well-established government scheme for
rewarding companies
involved in research and development activities, delivered through the
corporation tax system:
| A small or medium sized company (SME) may be able to
exchange trading losses for cash (the "tax credit") - worth up to 25% of the qualifying R&D expenditure *** BUDGET UPDATE *** Soon Large Companies will also be able to claim a cash payment even when loss-making, see News |
| Tax paying SMEs and Large Companies
may be able to generate a repayment of
corporation tax for prior years or reduce future tax liability - worth up to 26% of the qualifying R&D expenditure - 7.8% for large companies |
| All companies may be able to claim a 100% tax deduction for capital expenditure relating to eligible R&D |
Many companies assume they are not eligible, seeing their activities as not R&D but “just” engineering, product development, or manufacturing. The term R&D tends to evoke academic or blue-sky concepts, but eligible work can extend into many practical fields such as manufacturing, engineering and software development. Importantly, improvements to existing products or processes can also encompass eligible work as the relief is not focused purely on new product development. Experience has shown that any company who has a technology basis for their business may have a claim. In certain circumstances, you may be able to claim even if being paid to carry out the work.
ela8 delivers quality expertise in R&D Tax relief at an affordable cost. We carry out a quick, efficient and seamless service though a small team of highly experienced professionals. Our background is from both technology and finance, meaning that we can understand the nature of your R&D activities and can then translate this into qualifying R&D expenditure in accordance with the legislation and guidance.
Our clients range from large multinational corporate organisations to small start-ups and spin out companies and we have significant experience across a broad range of industries. Most importantly, our wealth of knowledge and experience means that we can tailor our work to suit your needs and your organisation. We are happy to work on a contingent fee basis (where our fee is proportional to the benefit actually achieved) so there is minimum risk in exploring the potential benefit.Our
breadth of experience and multi-disciplined team means that we can
provide a range of services to meet our clients’ needs, whether they
are
small or medium sized business or large corporate organisations
with
global
operations.
Skype ge.ela8 or tl.ela8
Email us HereOften
the first step is to have a brief (approximately 30 mins)
discussion
with you to understand at a very high level the company’s activities
or area of expertise in order that we can give you an idea of how best
you
can move forward
with
the preparation of a claim. This
initial conference call is entirely free and can even be conducted over
Skype if you prefer.
For
this briefing call it is important to have some basic details available
and also to have on the call, where possible, the most senior person
available who understands the technological activities of the business
(see below).
Alternatively, you can drop us an email with your contact details and any specific queries you have and we will get back to you. If you just want a quick opinion on whether you are likely to be doing eligible work, and feel your website gives a good overview of your company, just email this address to us. We will respond with our view and comments on the next steps.
Gareth
Edwards, Managing Director of ela8 limited, was a director of the
award-winning Deloitte R&D Tax Services team until April 2007
and since then has worked independently with a wide-range of clients,
from international groups to small SMEs, to bring significant benefit
to them through the submission of claims for R&D tax relief.
Gareth’s
background is as an R&D professional and entrepreneur and his
continued interest and insight into technology means that he is able to
understand the technological challenges faced by his clients and
identify how their work meets the criteria for eligibility for
R&D tax relief. Gareth is able to talk to the
technical personnel within the business to extract from them the scope
and basis for the R&D claims and to assist in presenting this
in a way that the tax authorities will understand and accept.
Gareth has over 25 years experience of active R&D development, gained in a wide range of industries but specialising mostly in software, microelectronics, telecommunications and medical physics. He held a number of senior R&D posts for major international companies and ran his own SME hi-tech development and manufacturing company, before joining the R&D Tax Services team at Deloitte on its inception in 2003. This experience means he is able to understand and effectively operate with a wide range of companies and environments, and is able to communicate with technical specialists in their own language. He holds an MA from Cambridge University, is a Member of the Institute of Directors, and a Fellow of the Institute of Physics (email Here).
Teresa
Latch's background until 2003 was in law and corporate tax
work. From the introduction of the R&D tax relief
regimes in the UK, Teresa worked within the Deloitte team providing a
range of services to a client base ranging from the pharmaceutical
industry to engineering consultancies, aerospace and defence equipment
providers.
Teresa was one of the initial members of the Deloitte R&D Tax Services team and her experience in this sector since 2003 means that she has developed a good working relationship with HMRC, has prepared a significant number of claims for both SME and large companies and understands the key areas of difficulty that applicants face when putting together their claims, particularly as regards the quantification of the claims. She is a Batchelor of Laws and undertook her chartered accountancy training (ACA) whilst working for Andersen (email Here).
For more specific detail as to how we can help, please click Here.
| Tax Year | Additional Deduction | Main CT rate | Effective Rate of Benefit | Cashback Benefit |
| 2010 | 75% | 28% | 21% | 24.5% |
| 2011 | 100% | 26% | 26% | 25% |
| 2012 | 125% | 24% | 30% | 24.75% |
More guidance is planned to address a number of areas. This is great news and demonstrates a commitment to the SME regime, with the Government taking heed of advice from specialist consultancies such as ourselves on the effectiveness and failures of the existing legislation.
The increase in the additional deduction rate and removal of the PAYE/NIC cap will ensure that innovative start-ups and existing small businesses really see the benefit of this relief, even if they use third party expertise to help in their development work (through hiring expert contractors and/or subcontracting pieces of work).
The change to a payable tax credit will be a big boost to loss-making Large Companies, and it is hoped that the regime will be kept as simple as possible. The falling corporation tax rates, though welcome, mean that the benefit of making R&D tax claims is reduced and it is important to keep the costs to claim as low as possible.
loss-making
SME. There are two mainThere are three key stages which are the same for both SMEs and large companies:
e
legislation very carefully sets out the categories of cost
that qualify for relief, there are specific rules relating to each of
those categories of cost, some of which are particularly difficult to
understand if you have no experience of making a claim. The
types of cost that qualify for relief differ depending on whether you
are claiming under the SME or large company regime and therefore
particular care must be taken to ensure that the correct costs are
included in the claims. A claim which includes costs which
are not within the scope of the legislation may undermine the entire
claim and may cause HMRC to scrutinise all aspects, including the
assessment of eligibility. Teresa's experience
in quantifying claims means that you can rely on her knowledge and
understanding of cost categories and how these are reviewed in practice
by HMRC.This regime was first introduced in April 2000 and is the most generous. In order to qualify as an SME, a company must meet certain criteria (which were revised from 1 August 2008):
These limits must be considered in the context of the company itself plus any related enterprises. A partner enterprise is any entity which is related by at least a 25% shareholding, and special rules apply where more than a 50% (controlling) shareholding is involved (linked enterprises). The simplest example is where an apparent SME is a wholly-owned subsidiary of a large group, and so is a large company itself for R&D tax purposes. The rules for aggregating the critical metrics are complicated, with some latitude for certain types of investment organisation - it is not always straightforward to determine the company status. Under certain conditions companies can even be linked through common ownership by individuals.
The SME regime also includes some rules regarding receipt of grants and other funding (including when being paid to do the work by another organisation) and also, for accounting periods ended before 9 December 2009, ownership of the IP resulting from the R&D efforts. Furthermore, where an SME is precluded from making a claim under the SME regime for a number of reasons it may be able to claim under the less-generous large company scheme - but care must then be taken to ensure that the large company regime rules are applied appropriately. These rules can be difficult to understand in practice and need careful consideration when preparing a claim.
The SME regime provides for an additional deduction of 100% (125% from 1 April 2012), giving an effective after-tax benefit up to 26% depending on the company’s corporation tax rate. For a loss-making SME, any losses generated through the R&D claim can be surrendered in exchange for a cash payment (“tax credit”) of up to 25% of the qualifying costs.
This regime was first introduced in April 2002 and applies to companies that are not SMEs (as defined above). For large companies, there are no rules relating to the receipt of grants or funding, or in respect of IP ownership. This regime intends to reward the company actually undertaking the R&D work, not those paying for it.
The large company regime provides for an additional deduction of 30% (25% up to 31 March 2008), giving an effective after-tax benefit of 7.8% for a company paying tax at 26%. For loss-making large companies, there is currently no option to surrender the R&D losses for a cash payment; the additional deduction in this case will only serve to increase the company’s trading loss which can be used in the usual ways under the corporation tax regime - in particular can be carried forward indefinitely. The 2012 budget proposed a new scheme for Large Companies which will allow a tax credit to be paid even if loss-making - this will come into force from 1 April 2013, see News.


