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HMRC to help with R&D claims

Under used. Research and development (R&D) relief is often overlooked by companies because they either don’t realise they qualify or think it’s more trouble than it’s worth.This can be a costly oversight because currently the R&D tax break is worth twice as much as other tax reliefs, and from April 2012 this will rise to two and a quarter times.

Example. A company which pays Corporation Tax at 20% and in 2012/13 spends £30,000 on R&D will be entitled to a reduction in its tax bill of £13,500 (£30,000 x 2.25 x 20%).

Broad scope. R&D claims can apply to a wide range of technology. For example, a construction firm which found a new method of erecting buildings and a software company which created products for the financial sector both qualify for the R&D tax break.

Government coaxing. In an attempt to encourage R&D the Taxman is offering a dedicated one-to-one service to help companies formulate and optimise claims (see The next step). This scheme is just a pilot and currently only open to companies with 50 or fewer employees, but the intention is to open it up to all businesses in the near future.

What’s on offer? The idea is to remove the uncertainty for R&D claims which currently exist. Working with a single designated tax inspector companies can establish a formula for working out the amount of R&D expenditure on which they can claim tax relief. Once the principles have been agreed, claims for the following two years will be accepted without the usual scrutiny and questions associated with R&D relief.

Tip. The Taxman’s new service will be particularly useful to businesses which haven’t made a claim before, as formulating an R&D claim is tricky. Whilst we give it the thumbs up for now, we’ll take a look later and let you know how it’s working in practice.

For a weblink to HMRC’s webpage, visit http://tax.indicator.co.uk (TX 12.04.01).