Corporation tax & R&D Flashcards
What is the corporation tax rate?
- Main rate = 25% (profits > £250,000)
- Small profits rate = 19% (profits < £50,000)
- Marginal relief band = £50k - £250k profits, paying a marginal rate between £50k and £250k between 19% - 25%
CT loss relief types?
Carry forward: Losses can be carried forward to offset future profits, reducing future Corporation Tax liabilities.
Carry back: Losses can be carried back to offset profits from the previous 12 months, potentially resulting in a tax refund.
Group relief: Losses can be surrendered to other companies in the same group to offset their profits.
Overview of the R&D RDEC scheme?
The RDEC scheme is for large companies and SMEs not eligible for the SME scheme.
Companies can claim a 20% credit on qualifying R&D expenditure, which is taxable. The credit can be offset against Corporation Tax or paid as a cash credit in some cases.
1) e.g. company with £500k R&D, gets a credit of 20% = £100k.
2) This is added to taxable profits, and CT is calculated. Say taxable profits of £1m + RDEC. = £1.1m, * 25% = £275k
3) RDEC less 26% is deducted from the tax = £275k - (£100k * 74%) = £201k.
4) Without the RDEC, tax liability would have been £250k.
How does R&D tax relief work for SMEs?
For Small and Medium-sized Enterprises (SMEs = less than £50m TO / BS less than £43m and headcount less than 250), R&D tax relief allows them to:
Deduct 186% of qualifying R&D costs from their taxable profits.
Loss-making SMEs can receive a cash credit worth up to 10% of the surrenderable loss.
R&D timing of claims
Claim must be made within 2 years after the end of the accounting period in which the R&D was incurred.
CT returns can be amended within 2 years of submission.
What qualifies as R&D
Activities must aim to resolve scientific or technological uncertainties for the entire field / space (not just your business) Qualifying activities include:
- Developing new products, services, or processes.
- Improving existing products, services, or processes.
- Technological advancements, even if the project is unsuccessful.
Allowable R&D expense examples?
- Staff costs (wages, salaries, pension contributions).
- Software and materials used for R&D.
- Utilities (power, water).
- Subcontractor costs (specific limits apply - 65% for outsourced).
- Prototyping and testing materials.
These can be claimed on both successful and unsuccessful R&D projects
Can you claim capital allowances backwards?
You can claim capital allowances in the current period, for assets purchased previously.
You cannot retrospectively claim, i.e. in 2023, amend the 2020 CT return to claim AIA,
What is corporation tax marginal relief and when does it apply?
Marginal relief reduces the Corporation Tax rate for companies with profits between £50,000 and £250,000, creating a gradual increase in tax rate between 19% and 25%.
When is corporation tax due?
For small companies: 9 months and 1 day after the end of the company’s accounting period.
For companies with PAT > £1.5m: quarterly instalment payments (QIPS) becomes necessary, 6 months following the start of the AP, then 3 months after this.
What are some common disallowable expenses for corporation tax?
- Entertaining clients (e.g., meals, events)
- Fines and penalties
- Donations (except to registered charities)
- Personal expenses (non-business-related costs)
- Depreciation (use capital allowances instead)
- Dividends paid to shareholders
What is the Annual Investment Allowance (AIA) for 2023/24?
The AIA allows businesses to deduct the full cost of qualifying assets from their taxable profits, up to a limit of £1 million per year. It covers most plant, machinery, and equipment, excluding cars.
What is the Writing Down Allowance (WDA) in the 2023/24 tax year?
WDA allows businesses to claim a percentage of an asset’s cost each year if the asset doesn’t qualify for AIA. The main rate is 18% for most plant and machinery, and a 6% rate for special rate assets like long-life assets and integral features.
What are First-Year Allowances (FYA) for 2023/24?
FYAs allow businesses to deduct 100% of the cost of certain environmentally friendly assets in the first year. This applies to low-emission cars (CO₂ emissions up to 50g/km), energy-saving equipment, and zero-emission goods vehicles.
What asset types don’t qualify for capital allowances in 2023/24?
Assets that don’t qualify for capital allowances include:
- Land and buildings (though some fixtures may qualify)
- Cars with CO₂ emissions over 50g/km (only low-emission cars qualify for FYAs)
- Leased assets (unless specifically qualifying)
- Items used for non-business purposes
- Structures (such as bridges, roads, docks)
Examples of disallowable R&D expenses
- Production and distribution costs (e.g., marketing, sales).
- Capital expenditure (e.g., the cost of land or buildings, although some capital allowances may apply).
- Rent or leasing of non-R&D equipment.
- Patent or intellectual property costs.
- Employee benefits (e.g., dividends, bonuses unrelated to R&D).
