Research and development Flashcards
Define R&D for tax purposes
R&D for tax purposes takes place when a project seeks to achieve an advance in science or technology.
A company that seeks to research or develop an advance in their field. The project does not necessarily need to be realised or achieved.
What must they show HMRC
Show how the project;
1) Looked for an advance in science or technology
2) had to overcome uncertainty
3) tried to overcome this uncertainty
4) could not be easily worked out by a professional in the field.
Who does it apply to
Small and medium size companies =
fewer than 500 employees
Annual turnover of less than or equal to 100 million euros
or Annual balance sheet figure less than or equal to 86 million euros
What is the usual effect of of the R&D
In total the company can claim 230% of the R&D expenditure to be deducted in arriving at the adjusted profits for tax purposes
Explain the 230% breakdown
100% deduction for R&D expenditure under the usual rules
Followed by an addition 130% super deduction for qualifying expenditure which falls into specific rules.
Name the 11 categorises
1) Revenue in nature
2) Related to trade carried out or to be carried on by the co
3) Staff costs
4) Software
5) Consumable or transformable
6) Relevant payments to subjects or clinical tests
7) Subcontracted out to other company
8) Subcontracted to company (us)
9) Subsidised
10) Going concern
11) Externally provided workers
Explain Revenue in nature
Cost must be revenue in nature not capital
Explain staff costs
All earning of whatever nature paid out to directors or employees
Directly and actively involved
Yes - NI Pensions bonuses
No - Benefits in kind redundency
Can be directly and actively involved in indirect activities which are specifically identifiable as part of the projects activities e.g maintenance engineer or director recruiting
Expenses can be proportioned.
Explain software give two examples
Software that is employed directly in carrying out the R&D
Allowed software used by HR for R&D workers
Not allowed software to train HR
Explain consumable or transformable
Expenses incurred on revenue items direcly employed in R&D. Items that can be consumed or transformed.
Water fuel power not rent telephone costs.
Production of goods and services is not R&D. Although can take place alongside R&D.
Is it a consumable item that is part of the item being sold? if yes disallow.
Explain work that is subcontracted out
If connected 100% expense then 130% of the cost to the third party
If unconnected
100% expense
130% of 65% of expense
or a joint election can be made for connected treatment. 2 years from YE when contract was entered into
Explain externally provided workers
- Must be an individual
- Not be a director or employee of company
- Be obliged to provide services to company personally
- Be under the control of company
Remember its 65% if unconnected.
