Corp Tax - Chapter 12 Flashcards
R&D legislation references
FRS 102 and IAS 38
Small and Medium companies - qual expenditure allowance %
130% of costs additional
SME Definition
i. fewer than 500 employees; and
ii. either annual turnover not exceeding €100 million or an annual balance sheet figure not exceeding €86 million.
Qualifying R&D
i. It must be revenue not capital in nature.
ii. It must be related to a trade carried on or to be carried on by the company.
iii. It must be incurred on:
a. staff costs;
b. software or consumables;
c. relevant payments to the subjects of clinical trials;
d. subcontracted R&D costs; or
e. externally provided workers.
iv. It must not be incurred in the carrying on of activities which are contracted out
to the company by any person.
v. It must not be subsidised.
Must be a going concern
Staff costs comprise of:
i. all earnings of whatever nature paid out to the directors or employees other than benefits in kind;
ii. secondary Class 1 National Insurance contributions (NICs) paid by the
company;
iii. contributions to pension funds paid by the company for the benefit of directors and employees;
iv. the compulsory contributions paid by the company in respect of benefits for directors or employees of the company under the social security legislation of an EEA state or Switzerland.
Other allowable expenditure - r&d
Software - directly used for R&D
Water, fuel and power
Subcontracted R&D - Connected Company
Where the payment is to a connected company, which draws its accounts up under GAAP, the whole of the payment up to the amount of the expenditure incurred by the connected company on the project qualifies for the additional 130% deduction.
Subcontracted R&D - Unconnected Company
65% claimable
Joint election (irrevocable) for connected treatment, two years from end of AP that contract is entered into.
External Workers
i. be an individual;
ii. not be a director or employee of the company;
iii. be obliged to provide services to the company personally;
iv. be under the control of the company.
R&D Tax Credits - Losses
Surrender amount less of:
- Unrelieved trading loss
- 230% of qualifying R&D Expenditure
Credit is the lower of:
-14.5% of loss and
- the PAYE cap on all employees (not just staff undertaking R&D activities).
PAYE Cap
Max of £20,000 plus 3 x relevent expenditure on workers:
- 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.
PAYE Cap date applies from
1 April 2021
When does the PAYE Cap not apply?
creating or preparing to create intellectual property, or is managing intellectual property which it holds.
E.G. patents, design rights, registered designs, trademarks, copyright, performers’ rights, plant breeders’ rights, know-how and trade secrets
