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R&D

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On Wednesday 3rd March, Chancellor Rishi Sunak announced the 2021 Budget which outlined this year’s steps to provide financial support and new opportunities for residents of the UK. The Chancellor set out the government’s tax and spending plans for the year ahead, and announced new measures to help businesses and jobs through the pandemic and to support the UK’s long-term economic recovery with a series of tax-raising plans to help rebalance the UK’s finances.

Please see below a few key points taken from last weeks budget:

Measures to mitigate the impact of Coronavirus:  

  • Extension of the Coronavirus Job Support Scheme (‘furlough payments’) to September 2021 across the UK, with employer contributions to salary from July.
  • Fourth Self Employment Income Support Scheme grant covering February to April 2021 to claim from late April. This is similar to the first three grants – and newly self-employed people who filed 2019/20 tax returns by 2 March may be eligible to claim for the first time.
  • No further support announced for people working as directors through their own personal companies.
  • Range of ‘Restart’ grants for businesses reopening after lockdown.
  • Recovery Loan Scheme from 6 April 2021: government to guarantee 80% of eligible loans from £25,000 to £10 million to give lenders confidence to support UK businesses, with some other loan schemes coming to an end on 31 March 2021.

Reliefs Extended:

  • Stamp Duty Land Tax Holiday on property transactions up to £500,000 extended from 31 March to 30 June 2021, with £250,000 threshold up to 30 September 2021.
  • Duties on alcoholic drinks and fuel frozen for the second year running.

Tax Year 2021/22:

  • Small increases in main Personal Allowance, Basic Rate Band and National Insurance thresholds confirmed, as already announced.
  • Lifetime Allowance for tax-advantaged pension funds, Inheritance Tax nil rate band, Capital Gains Tax annual exempt amount, ISA subscription limits all frozen at 2020/21 levels.
  • No increase in CGT rates announced, contrary to some speculation in advance, but there is the potential for this to be reviewed via a consultation later this month.
  • Corporation Tax rate remains 19% until 31 March 2023.
  • Personal Rate Tax bands and Personal Allowance are being frozen going forward.

To read the full 2021 Budget and Updated Tax Rates please click the links below. 

Ad Valorem Budget Summary 2021

2021/22 Tax Rates

If you have any questions regarding what was outlined in the budget update please do not hesitate to contact us:

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

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R&D tax relief – upcoming changes

After a recent announcement from HMRC new rules will come into effect from 1 April 2021 for SME businesses. The new rules are being implemented to target fraudulent claims using UK companies to claim a repayable credit even though no R&D is being carried out in the UK. 

The new rules apply a cap on the amount of payable R&D tax credit an eligible loss-making company can claim. It is important to note that the new rules only apply to loss making businesses or where your R&D claim takes you into taxable losses. The cap will affect claims for accounting periods commencing on or after 1 April 2021. 

What is the cap? 

The cap limits the payable R&D tax credit to three times the total annual PAYE and NIC liability of the company plus £20,000. 

I’m claiming R&D tax credits, will I be affected?

If your claim meets any of the below criteria, you will not be affected.

  • You claim under the RDEC Scheme (large company) 
  • Your R&D claim doesn’t take you into taxable losses in the accounting period
  • Your payable R&D tax credit is less than £20,000 

A company may also not be capped if it meets the criteria of the following two tests:

  1. The company’s employees are creating, preparing to create or actively managing IP arising from the R&D project. 
  2. The expenditure on subcontracted work or agency workers is less than 15% of the overall R&D expenditure. 

Even though the new cap is designed to target fraudulent claims, there will be many genuine SME claims who will be affected by the new rules. If SMEs outsource large elements of their projects or have large consumable costs, they may well be impacted by the new cap. 

If you have any questions about the new claim cap rules then please contact us using our details below: 

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

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R&D tax credits can be a valuable support mechanism for many SME’s, providing financial support to companies who strive to achieve better ways of working through innovation and development. 

However, there are also other forms of financial relief provided by the Government, including many new initiatives in 2020 as a direct result of the Coronavirus pandemic.  

The UK Government has spent billions on relief helping businesses get through the pandemic by the means of grants and loans such as Coronavirus Business Interruption Loan Scheme (CBILS), Bounce Back Loans (BBLs) and Coronavirus Job Retention Scheme (CJRS). 

With many of the government relief options falling under either “State Aid” or “De Minimis Aid” status, the big question for many businesses claiming R&D tax credits is – Can I still claim R&D tax credits if I’ve received COVID-19 relief?  

The answer is complex and depends on a number of factors, so we’ve broken it down into some of the common areas of COVID relief.  

Coronavirus business Interruption Loan Scheme (CBILS) 

CBILS is a Government funding scheme set-up to help SME’s during COVID-19 to ensure that these businesses did not go into liquidation. CBILS falls under the category of State Aid.   

Usually where Notified State Aid has not been allocated to fund a particular project or expense, HMRC assume it was divided out to all areas of expenditure and projects equally.  This therefore makes the R&D projects ineligible for the SME R&D tax relief. As a result of this, HMRC have issued the following statement: 

“The Government has notified CBILS as a State aid under the European Commission’s new Temporary Framework for COVID-19. The measure is a fully notified aid, so the restriction on receipt of other State aid (s1138(1)(a) CTA 2009) potentially applies, if the CBILS relates specifically to the company’s R&D expenditure [on a project] rather than being intended more generally to support the company. This will depend on the facts.”

Taking this statement into account, it would appear that HMRC is taking the view that if a business has claimed CBILS for general business support, it should not necessarily mean the business is now ineligible to claim R&D relief under the SME scheme. However, 

if the CBILS application specifically relates to an R&D project or is used to fund an R&D project, it will disqualify the company from claiming R&D under the SME scheme. 

Bounce Back Loans (BBLs) 

Unlike CBILS, the Bounce Back Loans falls under De Minimis Aid. Awarding authorities should tell companies when they are receiving De Minimis Aid; the company in receipt of De Minimis Aid must keep records for 10 years, detailing the total amount of aid received and what they used the de minimis aid for.

A company cannot claim R&D under the SME scheme for costs within a project that are funded by De Minimis Aid. However, a company can claim SME relief or payable credit for costs within the project not funded by De Minimis Aid. 

It is also worth noting that even if you are not eligible to make an R&D claim under the SME scheme, you may still qualify to make a claim under the RDEC (large company) scheme. 

Coronavirus Job Retention Scheme (CJRS)

In short, if you furloughed employees and claimed the Coronavirus Job Retention Scheme, the main criteria for CJRS was that furloughed employees cannot carry out work on the company’s behalf during the furlough period. As a result, the employee costs for the furloughed period cannot be considered eligible, as they were not contributing to the R&D project. 

Summary

If you are a SME claiming R&D Tax Credits and have received government support, you are best discussing the potential implications on your R&D claim with an expert. 

If you would like further information on how CBILS and Bounce Back Loans could affect your R&D claim, then please contact us using our details below.

(E) enquiries@advaloremgroup.uk or (T) 01908 219100 (W) advaloremgroup.uk  

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R&D (Research & Development) is a tax relief scheme which was introduced by the Government in 2000 to help and reward innovative businesses thus allowing them to progress.

What is R&D?

R&D takes all allowable expenditure incurred during the R&D project and allows you to gross it up by 130% meaning you can effectively deduct 230% of relevant costs from your profits. This equates to more than double of the allowable expenditure incurred.

Qualifying expenditure includes raw materials, staff costs, subcontractor costs and apportionments of overheads that are relevant to the R&D project. Loss making companies also benefit as they can opt for a cash payment of 14.5% of the losses made which increased from 11% as of 1st April 2014.

The R&D claim is submitted with a written report outlining why the project(s) undertaken qualify for R&D and backing schedules with details of costs incurred.

How far back can you claim R&D tax relief?

You have two years from the end of your accounting period to submit an R&D tax credit claim for any qualifying expenditure that you’ve identified during that period. This is because R&D tax credits are a Corporation Tax relief and the deadline for amending your Corporation Tax return is typically 24 months after the end of your accounting period.

Who qualifies for R&D?

The main requirement for a successful R&D claim is that your company is undertaking work which seeks to achieve an advance in science or technology.

The activities that directly contribute to achieving this advance in science or technology through the resolution of scientific or technological uncertainty are also eligible for R&D relief.

The common misconception is that the R&D tax relief only applies to those companies working in a scientific sector. In actual fact any sector could qualify for R&D relief if they can prove the project lead to an improvement in that field.

Here are some examples:

  • Food & drink
  • Pharmaceuticals
  • Electronics and Electricals
  • Engineering
  • Foundries
  • Software & IT
  • Manufacturing
  • Chemicals & Glues
  • Waste Recycling Plants
  • Video Games Development

If you think your company could be eligible for R&D tax relief, there are a number of things that we can help you do in order to maximise your R&D claim.

These include:

  • Collecting information on what R&D projects you have done or will be doing so that we can advise whether you qualify for R&D relief.
  • Establish what costs were incurred during the R&D projects and ensure you have the evidence for these in the event that HMRC request further information.

If you would like to speak to us regarding R&D tax reliefs and whether you would be eligible, please contact us using the details below:

01908 219100

enquiries@advaloremgroup.uk