Maximise New 150% R&D Tax Relief

Since 1st April 2000, small and medium sized companies (SME's) have been eligible to claim advantage of an extremely generous corporation tax relief on R&D costs. Such expenditure, to qualify, must be:

• Revenue based
• Exceed £25,000 per annum (time apportioned, if necessary)

The definition of what qualifies as R&D is more tightly drafted than for traditional accounting purposes. Although no overhead apportionment is permitted, costs should be claimed as follows:

• Staff wages
• Employer's NIC thereon
• Related pension and training costs
• Relevant consumables
• Attributable sub-contract costs

The total of all such costs should now be inflated to 150% and claimed as a corporation tax deduction. If this results in a loss being suffered, which cannot be used to create a refund in the traditional manner, then, in certain circumstances, a new tax credit refund can now be claimed.

"This latter mechanism is going to prove particularly attractive to new hi-tec companies who have not yet reached a point where they are trading profitably", commented Ely office partner Ian Piper. "There is now a real cash incentive for SME's to ensure that relevant R&D costs are accurately identified and disclosed in their business accounting records, so that year end statutory accounts, and the company tax return derived therefrom, maximise the R&D costs of the business."