Research and development
14th November 2011
In: Information
A new advice service from HMRC to help small companies claim tax relief for spending on research is a good idea, but mistrust of the taxman and grey areas in the definition of R&D may limit its value for business, tax experts said.
The 'R&D voluntary advance assurance' pilot scheme is for small businesses with fewer than 50 employees, including start-ups, which are about to make their first claim for R&D relief.
Companies which volunteer to take part will have the support of an expert on R&D relief expert. The aim is for the company and HMRC to agree a basis for the first R&D claim and claims for the two subsequent accounting periods.
If the company uses the calculations agreed with HMRC their claim will normally be accepted as accurate, unless a significant issue arises.
Companies that want to take part in the pilot should contact their “R&D relief unit”. If the test of the advice service is successful it will be used more widely.
The amount of money claim in relief on R&D, which advance “knowledge or capability” in science or technology, can range from the tens of thousands to millions of pounds. Preparing claims for relief can take months.
Tina Riches, director, technical, at the Chartered Institute of Taxation, said HMRC’s advisory service was a good idea. However, “grey areas” in the definition of R&D for tax purposes meant that small companies should consider getting a second opinion from a tax adviser, especially if large amounts of money were at stake, she said.
Anne Fairpo, a barrister at Atlas Chambers, who specialises in IT taxation law, said the advisory service was good in theory, but said she was concerned that “most businesses don’t trust” HMRC, which could limit demand for the service.
In a recent Treasury consultation on R&D tax credits smaller companies told the Treasury that they wanted more certainty and support when making claims.
In April, the rate of R&D relief for small and medium-sized companies with less than 500 employees – and either an annual turnover not exceeding €100m (£86m) or a balance sheet not exceeding €86m (£74m) - increased from 175% of “qualifying” R&D expenditure to 200%. From April 2012 the rate will rise to 225%.
SME companies who are not in profit may be entitled to a cash payment worth 25% of money spent on R&D from April 2011, and 24.75% from April 2012.
The rate of relief under the large company scheme remains at 130% of qualifying R&D expenditure.
The 'R&D voluntary advance assurance' pilot scheme is for small businesses with fewer than 50 employees, including start-ups, which are about to make their first claim for R&D relief.
Companies which volunteer to take part will have the support of an expert on R&D relief expert. The aim is for the company and HMRC to agree a basis for the first R&D claim and claims for the two subsequent accounting periods.
If the company uses the calculations agreed with HMRC their claim will normally be accepted as accurate, unless a significant issue arises.
Companies that want to take part in the pilot should contact their “R&D relief unit”. If the test of the advice service is successful it will be used more widely.
The amount of money claim in relief on R&D, which advance “knowledge or capability” in science or technology, can range from the tens of thousands to millions of pounds. Preparing claims for relief can take months.
Tina Riches, director, technical, at the Chartered Institute of Taxation, said HMRC’s advisory service was a good idea. However, “grey areas” in the definition of R&D for tax purposes meant that small companies should consider getting a second opinion from a tax adviser, especially if large amounts of money were at stake, she said.
Anne Fairpo, a barrister at Atlas Chambers, who specialises in IT taxation law, said the advisory service was good in theory, but said she was concerned that “most businesses don’t trust” HMRC, which could limit demand for the service.
In a recent Treasury consultation on R&D tax credits smaller companies told the Treasury that they wanted more certainty and support when making claims.
In April, the rate of R&D relief for small and medium-sized companies with less than 500 employees – and either an annual turnover not exceeding €100m (£86m) or a balance sheet not exceeding €86m (£74m) - increased from 175% of “qualifying” R&D expenditure to 200%. From April 2012 the rate will rise to 225%.
SME companies who are not in profit may be entitled to a cash payment worth 25% of money spent on R&D from April 2011, and 24.75% from April 2012.
The rate of relief under the large company scheme remains at 130% of qualifying R&D expenditure.
