Published on March 4, 2014
www.randdtax.co.uk RandDTax Profile (Terry Toms & Partners Ltd)) UK Wide coverage. Roots in Terry Toms Limited, started in 2002, with Terry Toms & Partners Limited founded in September 2012. A virtual company with a low cost base. 6 Directors and 23 Consultants (10 of whom are shareholders). Many of our consultants are associates of two organisations IIB Institute of Independent Business and IBD Initiatives in Business Development. The combination has handled claims relating to more than 2000 projects for more than 300 companies. (with more than 180 new clients since September 2012). Member of TECH UK (Trade body targeted to over 250k UK technology companies) Gained in excess of £7.5 million for our clients.
www.randdtax.co.uk LARGE COMPANY SCHEME Over 500 employees Plus one of, Turnover exceeding €100 million. Balance sheet exceeding €86 million. 130% of qualifying expenditure, a 30% uplift. No cash credit available in loss making situation. SME SCHEME 225% of qualifying expenditure, a 125% uplift. Before 31st March 2011 the rate is 175%, & 1st April 2011-31st March 2012 it is 200%. Cash credit available in loss making situations. EXCEPTIONS SME subcontracted R&D cannot be claimed except when an SME does work for a Large Company in which case it can claim at the Large company rate. An SME with a grant relating to R&D can only claim the none subsidised expenditure at the Large company rate.
www.randdtax.co.uk TOPICS 1. Better identify where clients are performing R&D – even when they do not recognise it themselves. 2. Understand and clear up some of the myths and misconceptions which surround R&D Tax Credits. 3. Delve into the reasons why many clients dramatically under claim, and find out the real facts. In one case we found a company which had only claimed 15% of their entitlement. 4. Find out what triggers HMRC investigations and how best to avoid those. 5. Understand why some clients and accountancy firms are afraid to make claims.
www.randdtax.co.uk 6. Find out how both clients and their accountants can minimise the task of making successful claims. 7. Find out why the charges of some R&D Tax Credit consultancies are so high. 8. Identify the most common problems with gathering accurate costs, and completing the CT600 and Tax Computation aspects of making claims. 9. Find out how to have your clients’ claims dealt with in a fast and efficient manner by HMRC. 10. Calculating R & D Tax credits.
www.randdtax.co.uk “ Of the various tax instruments available to government, R&D Tax Credits have the advantage that they seek to help companies that are themselves prepared to invest in R&D. Government does not need to choose sectors or companies, with the result that R&D can be encouraged in the widest possible range of sectors, taking advantage of businesses’ own insights into likely breakthroughs” From The Dyson Report on Innovation 2010
www.randdtax.co.uk How can we better identify where clients are performing R&D – even when they do not recognise it themselves? Do the directors feel that they are trying to innovate and investing time and/or money doing so? They could be developing new products, new services, new processes, new devices or new materials – or enhancements in any of those areas. They could be developing new manufacturing processes, applying science or technology in an innovative way. They could be doing the same with any operational processes – often involving ICT.
Application software developers www.randdtax.co.uk Br ew s Manufacturers er Legal Firms Test and Calibration companies Bailiffs Software tool developers Refurbishing of industrial components Engineering companies Manufacturers of machinery Ice Cream Injection Moulding Security Systems Software IT infrastructure Designer and manufacturer of industrial components Wi n c h m a k e r s Motor Industry Industrial process control systems Financial Services Compa
www.randdtax.co.uk R&D begins with the desire to achieve an advance which involves resolving scientific or technological uncertainties – and ends when the advance has been achieved and all the uncertainties are resolved. If even £5k or more is invested in any year a claim could be worthwhile.
www.randdtax.co.uk Understanding and clearing up some of the myths and misconceptions which surround R&D Tax Credits. Claiming is complicated and time consuming. Claiming is risky and may lead to broader tax investigations. HMRC do not want claims to succeed so make it hard to qualify. We need to own the IPR in order to claim. We are too small to claim. We are just subcontractors, so cannot claim. We only develop web sites so would not qualify. We do not employ any PhDs. Programming is not R&D.
www.randdtax.co.uk Delve into the reasons why many clients dramatically under claim and find out the real facts. In one case we found a company which had only claimed 15% of their entitlement. Clients may not fully understand where R&D begins and ends. Clients, especially those who are very strong technically, often undervalue what they do. Client quote “ we take uncertainty as routine” Clients will often undervalue the R&D that goes on in their heads 24 x 7. Usually the purchase of R&D materials or software means that labour costs go with it. Clients are nervous that if they are seen to over claim, the wrath of HMRC will come down on their heads. So they do not claim what they are entitled to claim.
www.randdtax.co.uk Find out what triggers HMRC investigations or exploratory meetings after claims are made, and how best to avoid those. Errors in computation in favour of the client. Claims for costs that do not qualify. Poorly written R&D Technical Justification documents. Poorly explained scientific and technological advances. Poorly explained scientific and technological uncertainties and explanations of how resolution was attempted. Lack of explanation of why those uncertainties could not be “readily resolved by a competent professional working in the field”. Claimed qualifying costs which seem way in excess of industry norms and cannot be justified. Bad luck.
www.randdtax.co.uk Understand why some clients and accountancy firms are afraid to make claims. Unfortunate experiences in the early days of claiming. The ins and outs are difficult to learn if you only have one or two claims a year. The professional bodies give little or no training in the areas of R&D Qualification for tax purposes.
www.randdtax.co.uk Find out how both clients and their accountants can minimise the task of making successful claims. Gain a good understanding of the Guidelines and following the links: http://www.hmrc.gov.uk/ct/formsrates/claims/randd.htm Keeping that information up to date each year in light of changes to the scheme. Maintain very good records of R&D spending and project details, in order to make successful claims. OR Partner with a specialist such as www.randdtax.co.uk
www.randdtax.co.uk Find out why the charges of some R&D Tax Credit consultancies are so high. Our research suggests that charges vary from 15% to 50% of CT relief or credits generated to the client. Average SME claim UK wide is just over £40k. The 50% fee relates to an uplift claim where a claim has already been made and this is audited by a consultancy, if further CT relief or credits are found. The fee is based on the additional savings found. There are many reasons for the high fees: 1 – there is often a lot of work to do. 2 – There can be sensitive negotiations with HMRC. 3 – Much or all of the fee can be contingent on success. 4 – Companies in the market run the risk – when investing in training, infrastructure and processes – that the UK government could drop R&D Tax Credits. 5 – Consultancies are required to have a wide range of skills to deal with all industries and the technical, accounting, tax and legal aspects. Sales and Marketing costs can be high.
www.randdtax.co.uk www.randtax.co.uk fees are currently 15% of relief/credit for normal claims and 20% for uplifts with a £2k minimum fee, that is fully refundable if a claim fails and cannot be defended. Our consultants have handled in excess of 1000 claims over 11 years with a 100% success rate. Why can we keep fees low? We can keep fees low because we are virtual business, yet have access to two large and well respected business consultancy networks – IIB ( Institute for Independent Business, www.iib.ws )and IBD ( Initiatives in Business Development, www.ibd-uk.com ). Our consultants are well trained and supported. They have experience across virtually every industry and profession and are both mature and independent. Through our network of consultancy and accountant contacts we can reduce sales and marketing costs.
www.randdtax.co.uk Identify the most common problems with gathering accurate costs, and completing the CT600 and Tax Computation aspects of making claims. Poor client records. Lack of understanding of accurate scope of R&D work. Clients and their accountants are under time pressures. Most accountancy firms see very few R&D Tax Credit claims so investment in training etc is not justified. www.randdtax.co.uk has now five qualified accountants out of a consultancy group of 24 people throughout the UK. We have developed tools and guides to help the accountancy firms we work with, and their clients. They are available to help you. Our aim is to make the claim process as simple and quick as possible for clients and their accountants.
www.randdtax.co.uk Find out how to have your clients’ claims dealt with in a fast and efficient manner by HMRC. Follow an established process that is proven to work. Partner with people who can help you and who have the HMRC contacts to smooth the process if it does go wrong.
www.randdtax.co.uk Look at examples of calculating R&D Tax Credits in different situations. Company Year End 30th June 2013 Profits for CT purposes £100,000 R&D Qualifying costs £ 50,000 R & D Uplift at 125% £ 62,500 R&D adjusted Profit for CT Purposes £100,000 less £62,500 = Saving in CT ( 20% of £62,500) Saving represents 25% of qualifying R&D Costs £ 37,500 @20% £ 12,500
www.randdtax.co.uk Company year end 30th June 2013 Profits for CT purposes £ 20,000 Qualifying R&D Costs £ 50,000 R& D Uplift at 125% £ 62,500 New LOSS for CT Purposes after R&D Tax adjustment £20,000 - £62,500 Saving in CT 20% of £20,000= £4,000 and R&D Tax credit payable at 11% of £42,500 =£4675 making total saving of £ - £42,500 £ 8675 Saving represents 17.35% of qualifying R&D Costs. Loss for CT purpose after R&D adjustment could be carried back or forward with potential for larger benefit.
www.randdtax.co.uk Company year end 30th June 2013 Loss for CT Purposes £20,000 Qualifying R&D Costs £ 50,000 R&D uplift 125% £ 62,500 Surrenderable loss for CT purposes is lower of the £20,000 unrelieved loss + £62,500 uplift = £82,500 AND the enhanced qualifying R&D costs which is £50,000 + £62,500 = £112,500 £82,500 is the lower so this can be surrendered for 11% cash or carried back or forward. So benefit is worth at least £9075 or 18.15% of the qualifying costs in immediate cash. The loss without the R&D Tax Credit adjustment would not be available as a cash credit, but could be carried forward or (perhaps) back. The value of the R&D related portion of the enhanced loss is £6875 in immediate cash, but enables the immediate cash payment of £9075.
www.randdtax.co.uk Company year end 30th June 2013 Loss for CT purpose £ 80,000 Qualifying R&D Costs £ 50,000 R& D uplift 125% £ 62,500 Enhanced loss for CT purposes is lower of Loss £80,000 + £62,500 uplift = £142,500 AND the enhanced qualifying expenditure £50,000 + £62,500 = £112,500 £112,500 is lower, so this can be surrendered for 11% cash. So the R&D Tax Credit is worth at least £12,375 or 24.75% of the qualifying costs. £6875 is directly related to R&D but R&D enables the full amount to be claimed in cash. If the whole enhanced tax loss if carried back or forward could be worth 20% or more of the £142,500 with 20% of £62,500 being directly related to R&D = £12500. 25 0f the R&D spend.
Terry Toms www.randdtax.co.uk Telephone 02033 930656
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