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R&D tax reliefs: Not just lab coats and microscopes! Guang Deng R&D Tax Manager Leyton UK.

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Presentation on theme: "R&D tax reliefs: Not just lab coats and microscopes! Guang Deng R&D Tax Manager Leyton UK."— Presentation transcript:

1 R&D tax reliefs: Not just lab coats and microscopes! Guang Deng R&D Tax Manager Leyton UK

2 UK R&D Tax Relief and the Above the Line Tax Credit Patent Box Appendix Contents

3 CCH has partnered with Leyton UK to provide a Research and Development service for clients Leyton has over 530 advisers specialised in their field – including engineers, scientists and IT/software experts Further information: CCH advice lines CCH and Leyton

4 UK R&D Tax Relief and the Above the Line Tax Credit

5 Expenditure based tax incentive Super deduction ­ The uplift ­ Enhance tax deductible expenditure against taxable profit SME vs large company Resulting tax benefits vary depending on company tax position From 1 August 2008 Number of employees; and< 500 Turnover; or 100 million Total Assets 86 million UK R&D Tax Relief and the Above the Line Tax Credit

6 An example of comparison Figures shown are shown for illustration purposes * Tax Rate may vary according to company tax position * Calculated as 12.5% of the 200% Enhanced Expenditure SME Scheme Large Company Scheme LossProfit Qualifying R&D Expenditure £ 100,000 Uplift£ 100,000 £ 30,000 Enhanced Expenditure£ 200,000 £ 130,000 Tax Rate*0%20%24% Credit£ 25,000*N/A ReliefN/A£ 20,000£ 7,200 UK R&D Tax Relief and the Above the Line Tax Credit

7 SME SchemeLarge Company Scheme 225% of enhanced deduction since 01/04/2012 (200% from Apr 2011, 175% from Apr 2010) 130% of enhanced deduction since 01/04/2008 Payable tax credit (see Appendix IV for more details) No payable tax credit, yet Subcontracting costs can be included (subject to restrictions) Claim may be reduced if the R&D project is subsidised No reduction on relief for grants or subsidies received UK R&D Tax Relief and the Above the Line Tax Credit

8 The Payable Tax Credit is only available to SMEs Tax loss-making position Losses can be surrendered in return for cash due from HMRC Tax credit is capped by the companys PAYE & NIC contributions paid (abolished 1 April 2012, subject to state aid approval) Are large company losing out? UK R&D Tax Relief and the Above the Line Tax Credit

9 The Above the Line (ATL) tax credit – 9.1% return (before tax) Visibility and signal to international investors Large companies better off, compared to now Effective from 1 April 2013 Stage 2 consultation Accounting and tax impact UK R&D Tax Relief and the Above the Line Tax Credit

10 R&D definition – unchanged for tax purposes BIS Guidelines: 1.Scientific or technological advance ­ An advance in a overall knowledge or capability in a field of science or technology ­ Includes the adaptation of knowledge or capability from another field of science or technology in order to make such an advance where this adaptation was not readily deducible 2.Scientific or technological uncertainties ­ Whether something is scientifically possible or technologically feasible, or ­ How to achieve it in practice, is not readily available or deducible by a competent professional working in the field 3.Systematic, Investigative or Experimental activities ­ Not accidental discovery ­ Logical, planned approach to undertake the R&D activities ­ The timeline should highlight the design alternatives and the analysis or tests done to select between alternatives UK R&D Tax Relief and the Above the Line Tax Credit

11 Project description and technical orientations Phase of studies, investigation and engineering Laboratory studies, prototype and pilot plant tests Validation tests Mass production Commercial exploitation Qualifying Activities Resolution of Uncertainty Non-Qualifying Activities, typically Examples of eligibility during a new product development process UK R&D Tax Relief and the Above the Line Tax Credit

12 QUALIFYING EXPENDITURE Agency workers who are actively engaged in carrying out R&D Staff Costs related to staff who are involved in carrying out R&D Software licences used directly in carrying out R&D Minimum annual qualifying expenditure of £10,000 (to be abolished from 1st April 2012, subject to state aid approval) Clinical trials (Large Companies from 1 April 2006 and from 1st August 2008 for SMEs) Consumable or transformable materials used directly in carrying out R&D Subcontracting costs (only for SME, certain conditions for large companies) UK R&D Tax Relief and the Above the Line Tax Credit

13 Patent Box

14 Revenue based tax incentive 10% tax rate Effective from 1 April 2013 Qualifying conditions Company Intellectual properties (IP) Income Profit What it means to UK companies ­ Single entity vs groups ­ Patent or not ­ Define responsibilities ­ Apportionment methodology Patent Box

15 Appendix

16 Manufacturing and Mechanical Engineering Eligible activities for R&D tax relief: ­ Design and development of a new cutting or forming machine prototype offering functionalities that are not straightforward to achieve ­ Behaviour analysis of newly developed materials under high thermal/vibration/pressure stress conditions or new/novel analysis of existing materials ­ Non-straightforward adaptation of existing products to meet changing government or industry environmental or safety standards ­ Development of a unique manufacturing process to increase precision or efficiency ­ Significant reduction of waste through process and machinery innovation Not eligible: ­ Minor adaptations to a manufacturing process or mechanical product – e.g. trivial calibration of a sensor or a simple aluminium plate design based on previous products ­ Expansion of a production line that only involves replication rather than innovative improvements Appendix: Industry Examples

17 Software and Systems Engineering Eligible activities for R&D tax relief: ­ Development of a complex web based material database management system to improve information speed and security while tracking plant operations and customer product deployment ­ Design of a production system combining electronic sensors/controllers and mechanical elements (valves, heating elements, vacuums, etc.) in a novel way ­ Developing complex automated scripting to improve manufacturability analysis, e.g. verifying a PCB design meets both the electrical and manufacturing constraints ­ Implementing a complex power reduction/management system as a green industry initiative ­ Integration of complex manufacturing processes into one fully automated process by combining multiple user controls or PLCs into one software control centre Not eligible: ­ Routine deployment of a standard software process tracking tool ­ Website design and development (use of standard PHP, Javascript and so on) ­ Straightforward automation of a previously manual process


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