TAX BREAKS FOR RESEARCH AND DEVELOPMENT
In 2000, the UK Government introduced Research and Development (R&D) tax relief as an incentive to businesses, aimed at encouraging and facilitating innovative activity. The policy addresses the UK’s under-investment in R&D, and a concern that the private rate of return from R&D was substantially lower than the social rate. Amendments to the rules, and increased allowances, were announced in August 2008 and further ones included in the Chancellor’s March 2010 Budget. R&D tax relief can either reduce a company’s tax bill or, for some SMEs, offer a cash sum paid by HM Revenue & Customs (HMRC).
What is the definition of R&D?
To qualify for tax relief, a project must comply with the HMRC definition of R&D – that is, to achieve an advance in science or technology, through the resolution of scientific or technological uncertainty.
HMRC guidelines state that ‘science’ does not include work in the arts, humanities and social sciences (including economics). Also, a SME will not be eligible for R&D tax credit, if it receives any other notified state aids for the same project.
Are creative businesses eligible?
Yes. Government has expressed a commitment (Department for Culture, Media and Sport, February 2008) to increase awareness of the current R&D tax credit schemes, and to investigate ways of making it more user-friendly for small businesses, with a particular focus on the video games industry. However, feedback from many creative businesses shows that obtaining R&D relief is complex and contentious process because of the qualifying criteria and a capacity to undertake some R&D projects. To qualify for HMRC tax relief, a project must comply with the HMRC definition of R&D (see above) and.a company must spend at least £10,000 a year on qualifying R&D costs.
Solutions to problems of eligibility and access to R&D are being found and advice made available in the South West. Creative industries is recognised by South West Regional Development Agency (SW RDA) as a priority business sector for its support programmes (including the new Creative Industries Innovation Network managed by South West Screen). In addition, creative industries is named by the South West Science and Industry Council (SWSIC) as a regional leader in R&D activity (see http://www.sciencesouthwest.org.uk/about_the_region/business_sectors/creative_industries.aspx ).
SME Scheme for tax relief
There are two Government schemes for claiming relief: the Small or Medium-sized Enterprise (SME) Scheme and the Large Company Scheme.
Who can apply for the SME scheme?
The definition of a SME for the purposes of this scheme, is a company with fewer than 500 employees and either a turnover of up to €100m, or a balance sheet total up to €86m. Tax relief is only available if you spend at least £10,000 a year on qualifying R&D costs.
How does the scheme work?
The tax relief on allowable R&D costs is 175% – that is, for every £100 of qualifying costs, your company or organisation could have the income on which Corporation Tax is paid reduced by an additional £75 on top of the £100 spent. The SME scheme has the higher rate of relief, although unlike the Large Company Scheme there is an upper limit of €7.5 million.
SMEs not in profit can get a cash payment equivalent to about 24.5 pence for every pound of qualifying expenditure instead of tax relief – thus getting money to support R&D while the company is loss-making.
How do SMEs apply?
For full details on how and when to claim R&D relief see Research and Development (R&D) Relief for Corporation Tax section of the HMRC website.
FURTHER INFORMATION AND OTHER SOURCES OF FUNDING
Department for Business, Industry and Skills
see also: http://www.dius.gov.uk/innovation/business_support/randd_tax_credits/case_studies
Grants for R&D
(a Department for Business Industry and Skills scheme that provides grants between £5,000 and £500,000 for low carbon technologies projects)
“HM Revenue & Customs (HMRC) Research and Development Relief for Corporation Tax”: http://www.hmrc.gov.uk/ct/forms-rates/claims/randd.htm
HM Revenue & Customs (HMRC) Corporate Intangibles Research and Development (CIRD) Manual
(provides full details of the R&D tax credits legislation, including how to claim)
South West Science and Industry Council
See also SWSIC Innovation Forum events for businesses (contact 01275 370849) such as:
University of Plymouth 8th April
Bournemouth 24th June (in collaboration with the Bournemouth Uni Festival of ideas & Innovation)
Hp Labs, Bristol 22nd July
Technology Strategy Board (one of the Higher Education Funding Council’s research bodies that supports R&D projects between businesses and academics)
