CH 12 - Research and Development Expenditure Flashcards
When Research and Development for tax purposes takes place?
when a project seeks to achieve an advance in science or technology.
What tax deducgtion can SMEs claim?
(%)
- 186% for qualifying R&D expenditure incurred on or after 1 April 2023
- (230% for expenditure before 1 April 2023)
List qualifying expenditure for R&D purposes
The relief relates to ‘qualifying’ expenditure on:
* staff costs – earnings paid in the accounting period (excluding benefits), Class 1 secondary NICs, pension paid in the accounting period;
* computer software, data licences, cloud computing services and consumable items (such as water and electricity which are used in the R&D process);
* relevant payments to subjects of clinical trials;
* subcontracted R&D costs;
* externally provided workers.
When R&D relief is not avilable for consumables reflected in goods/services?
Relief is not available for consumables reflected in goods/services sold as part of the company’s trade.
How R&D cost qualifies when work is subcontracted (payments for workes provided) to (by) connected companies?
the payment to the connected company qualifies for relief
at the lower of ;
* the payment and
* the costs incurred
How R&D cost qualifies when work is subcontracted (payments for workes provided) to (by) un-connected companies ?
The additional deduction can only be claimed for 65% of the payment
unless an election is made for connected party treatment
- join ellection in writting is irrevocable and must be made within 2 years from the end of the 1st accounting period in which the contract is entered into.
How Capital expenditure incurred by the company for R&D is treated for R&D purposes?
capital expenditure incurred by the company for R&D purposes is not qualifying R&D expenditure,
it is eligible for a 100% first-year allowance instead.
What tax trade loss can be surrendered to HMRC to receive a tax credit (a cash payment) ?
The trade loss which can be surrendered is the amount of the unrelieved trade loss that is attributable to the tax relief given on qualifying R&D expenditure.
How you determin surrenderable loss?
The surrenderable loss is the lower of:
* qualifying R&D expenditure × 186% (230% for expenditure before 1 April 2023); and
* the unrelieved trade loss (after any actual or potential current year loss relief claims and any actual carry back loss relief claims).
How much tax credit (i.e. cash payment) can SME obtain?
is 10% of the surrenderable loss for the accounting period
(14.5% for expenditure before 1 April 2023),
its subject to a cap of £20,000 plus 3 × PAYE and NICs payable on all employees for the period.
The PAYE cap restricts the R&D tax credit to a maximum of £20,000 plus 3 × the
‘relevant expenditure on workers’, being: CTA 2009, s.1058A
* the company’s total liability for PAYE and Class 1 NICs for the period (for all
workers, not just those engaged in R&D), LESS
* any amounts for employees acting as externally provided workers or
subcontractors on the R&D activities of connected companies (to avoid
double counting as the connected company will include these costs), PLUS
* PAYE and NICs paid by connected companies where they provide externally
provided workers or subcontractors performing qualifying R&D for the claimant
company.
By when a company must notify HMRC of its intention to make a valid R&D claim?
The claim notification period for AP begining on/after 1.April 2023 the company must notify HMRC of its intention to make a valid R&D claim.
Notification period begins with the first day of the period of account(PoA) in which the accounting period falls and ends six months after the end of that period of account.
UNLESS:
- claim is made within 6mts from the end of PoA
- a claim has been made during the 3-year period ending 6mts after the end of PoA, or
- claim has been made for another accounting period which falls in same period of account.
notification must be made using a digital information form and from 8/8/2023 must contain information set out in SI 2023/813 for the claim to be valid
How and by when R&D claim must be made?
- R&D claims must be made in the company’s tax return.
- the time limit for making a claim is 2 years from the end of the PoA to which the claim relates (on or after 1/4/2023)**
When £20,000 cap along with 3x PAYE (relevant expenditure workers) DOES NOT APPLY ?
2 CONDITIONS
- the company is creating/preparing to create intellectual property or is managing intelectual property which it holds; and
- qualifying exp. on externally provided workers & subcontracted R&D by a connected company, does not exceed 15% of the company’s qualifying expenditure in its R&D Claim.
