LEGAL
R&D tax relief myths busted
By Sheetal Sanghvi, RSM
In last month’s article we busted an additional two R&D myths – “My company hasn’t invented anything, so we can’t claim” and “We can’t claim as our customers have funded our R&D”. HMRC has clear rules on the type of activity that qualifies for R&D
tax relief. While they cover ground-breaking products and processes, companies do not have to invent something radical to make a claim. Some companies carry out R&D work following a request from their customers. Others may act as a subcontractor and deliver R&D work for another company. However, both activities can still qualify for R&D tax relief. Could you qualify for R&D?
This month we bust two more of our six myths: MYTH ONE:
We don’t pay corporation tax, so we can’t make a claim
MYTH BUSTED: Many businesses believe that they can’t make an R&D claim as they don’t pay corporation tax. However, where a company is loss-making and not paying corporation tax there is good news and even a choice on how the R&D benefit is used. The R&D claim can either be carried forward as trade losses to be
deducted against trading profits. This will help save tax in the future. Alternatively the loss generated by a claim can be surrendered to HMRC for a cash repayment known as a tax credit. For every £1 spent that qualifies for SME R&D tax credit, a company
receives a payable credit of 33p. For large businesses, the RDEC tax credit is 11%, meaning for every £1 spent, a 9p tax credit is received. A recent example is when a design and manufacturer of electrical equipment made a claim. The company made a loss of over £1m and claimed for a qualifying spend of over £750k. They received a cash tax credit of over £250k.
MYTH TWO:
HMRC will start investigations into all our tax affairs if we make an R&D claim
MYTH BUSTED: HMRC will always review R&D claims before processing tax returns and have specialist units purely dealing in this area. These specialist units apply a pragmatic approach and there is usually no need to worry. The submission of an R&D claim does not automatically mean that
HMRC will automatically investigate other areas in the return. Claims are usually submitted with supporting documentation which sets out the qualifying R&D activities undertaken, the basis for the claim and how it is calculated. Reports like this help reduce the chances of a challenge from HMRC. This gives peace of mind that a claim is robust. Companies often run into trouble when R&D claims have been
prepared by themselves. We’ve worked with one company that submitted its own claim which then resulted in an enquiry. This was due to poor calculations and not applying the rules correctly. Since the enquiry it has requested that RSM be involved in the R&D tax calculations and prepare a report for HMRC to review. They have not had another enquiry since.
NEXT ISSUE:
This myth will be busted: We think we are doing the same as our competitors so we can’t claim.
64 business network July/August 2018
Major changes to the MOT test rules in Britain could have huge legal ramifications warns Cristina Parla from leading law firm Roythornes Solicitors. She cautions motorists to fully understand the system as the law may not be on your side if you are involved in an accident. The rules around MOT tests in
Britain changed recently and could potentially make it harder for vehicles, including cars, vans and motorbikes, to pass the MOT test thanks to a new sliding scale of testing. However, the new regulations could have negative implications for UK drivers too. The move was introduced by the
Driver and Vehicle Standards Agency (DVSA) to improve air quality and
make roads safer. The new testing scale for an MOT slides from ‘dangerous’ to ‘major’ to ‘minor’. ‘Dangerous’ and ‘major’ defects are automatic fails whereas a ‘minor’ defect is a pass but should be repaired as soon as possible and it is here where the potential danger lies. An example of how the new MOT
system could impact your legal bearing if involved in an accident could be regarding faulty brakes. If an accident had been caused by faulty brakes but the owner of the car denies they were faulty, the legal team could ask to see the most recent MOT which should now record defects in the appropriate category. If there is evidence to show that the brakes were an issue at the
‘Dangerous’ and ‘major’ defects are automatic fails whereas a ‘minor’ defect is a pass but should be repaired as soon as possible’
Changes to the MOT test may have legal implications
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