You may recall that as part of the budget announcements in March 2011, it was announced that there would be revisions to the SME R&D tax relief scheme aimed at making it more attractive for claimant companies. This firm was an active participant in the consultation process, suggesting these changes to increase the amount of relief that SMEs would be able to claim. Following that consultation process the changes announced by the Government were:
- To increase the additional deduction from 75% to 100% for expenditure incurred on or after 1 April 2011 and from 100% to 125% for expenditure incurred on or after 1 April 2012.
- To abolish the rule limiting an SME company’s payable R&D tax credit to the amount of PAYE and national insurance contributions it pays for expenditure incurred on or after 1 April 2012
- To abolish the £10,000 minimum expenditure condition for all companies for expenditure incurred on or after 1 April 2012.
At the time of the budget it was made clear that the above changes were to be included in the Finance Bill 2012, subject to State Aid approval from the European Commission (EC). This has approval has now been given, and we can therefore expect to see the changes in the draft legislation to be published later this year.
At the same time the Government’s extension of the duration of the R&D Tax Credit scheme for SME and the Vaccines Research Relief scheme for large companies by an additional four years to 31 March 2017 was approved by the EC.
As a notified State Aid, the relief given under the SME scheme is subject to EC approval for any changes. The receipt of this approval enables the Government to continue to improve its support for SME technology businesses by way of a targeted tax relief.
What this means for you
As a company able to claim under the SME scheme for research and development work performed this gives certainty to the increased rate of the relief that you will be able to obtain. It will enable you to incorporate this benefit into your R&D plans, business plans and cash flows.
For every £100 of qualifying expenditure on R&D you will now obtain, from 1 April 2011, an additional £100 of tax deductions making a total deduction of £200. From 1 April 2012 each £100 of qualifying expenditure will generate an additional £125 of tax deduction, making a total of £225. If the company is tax paying then this will reduce your tax liability at whatever your marginal rate of tax is. If you are not paying tax then the relief may be surrendered for a tax repayment of up to 14% of this enhanced total deduction for expenditure on or after 1 April 2011 and up to 12.5% of this enhanced total for expenditure on or after 1 April 2012.
Before the abolition of the PAYE & NIC cap from 1 April 2012, companies are only able to receive a cash repayment up to the amount of PAYE & NIC paid in the accounting period. In practice this means that companies that have a small payroll, but a comparatively large amount of qualifying R&D expenditure have not been able to receive the cash funding potentially available. From 1 April 2012 companies will now be able to access a cash repayment for the whole of the surrenderable amount.
The amounts available are now potentially very generous and some of the practical hurdles preventing those companies most in need of the additional funding have now been removed, albeit from next year.
How can we help?
We are a specialist provider of consultancy services assisting companies to understand their ability to make claims for R&D tax relief, and how to optimise those claims. We would be happy to talk to you about how you may take advantage of the increasing benefits that will be available to companies carrying out qualifying activities.
Please do not hesitate to contact John Moore on 0207 292 8850 or at firstname.lastname@example.org if you would like to discuss the application of this, or any other aspect of the R&D tax relief to your company.