Welcome to the September 2014 Newsletter from Easterbrook Eaton Limited
The UK's entrepreneurial spirit is still very much alive and well, as new figures show a record number of claims from small businesses for research and development tax reliefs. These have become increasingly generous in recent years and for small firms there is a possible tax credit of 225% of R&D expenditure. Remember, we can advise on tax saving opportunities for you and your business ...
R&D tax credit claims reach record levels for SMEs
There were 13,010 claims for research and development tax relief under the SME scheme in 2012/13 - up 30% from the previous year and the largest number since the scheme was introduced in 2000 - according to official HMRC figures.
The amount claimed by small businesses reached almost £600m, up from £430m last year. Overall, the total number of claims, combining the SME and large companies schemes, rose 26% to 15,930.
The HMRC figures also show that R&D tax relief is not just the preserve of manufacturing companies. Although the manufacturing sector still has the most applications with 3,970 applications for relief of £165m, information and communications companies put in 3,585 claims, and professional, scientific and technical businesses accounted for 2,410 applications, for a total of £145m in relief.
Tax credits on R&D were introduced in 2000 in an attempt by the Government to encourage research and innovation. Since then the available tax breaks have become increasingly generous and HMRC has also broadened its interpretation of the rules to apply more widely and provide a greater stimulus to innovation. The level of corporation tax relief for SMEs has been more than doubled to 225% of the R&D expenditure over the last two years and the £10,000 a year minimum spending limit has been scrapped.
With more and more SMEs realising that R&D tax credits aren't just for large manufacturing firms or tech companies but for many other types of business working on innovative products or processes, could your firm benefit? We can advise on whether the relevant conditions can be met.
Current R&D tax relief rates - a brief overview:
Tax relief is available on research and development revenue expenditure at varying rates. Current rates of relief are as follows:
for small and medium-sized companies paying tax at 20%, the maximum rate of tax relief is 45% (that is a tax credit on 225% of the expenditure)
for small and medium-sized companies not yet in profit, the relief can be converted into a tax credit payment worth 32.63%
for larger companies paying tax at 21%, the maximum rate of relief is 27.3% (that is tax relief on 130% of the expenditure)
a 10% 'Above the Line' (ATL) credit exists for large company R&D expenditure incurred on or after 1 April 2013. The credit is fully payable, net of tax, to companies with no corporation tax liability. The ATL credit scheme will be optional until it becomes mandatory on 1 April 2016. Companies that do not elect to claim the ATL credit will be able to continue claiming R&D relief under the current large company scheme until 31 March 2016.
SMEs barred from claiming SME R&D tax credit by virtue of receiving some other form of state aid (usually a grant) for the same project will be able to claim the large company R&D tax credit. Therefore they will qualify for relief on 130% of their R&D expenditure. An SME may also be entitled to the large company R&D tax credit for certain work that has been subcontracted to it.
For more business and personal tax planning ideas, visit the Tax Strategies section of our website and contact us for more advice.
New car tax rules - avoiding a penalty
From 1 October 2014, the traditional paper tax disc will cease to be used in the UK. Those already in existence with some months left before renewal can be taken from vehicle windscreens and discarded, but, unfortunately, you will still need to pay vehicle tax!
The paper tax disc was first issued on 1 January 1921 and, according to recent figures, over 99% of motorists pay their vehicle tax on time. Some concern has been raised that not having to display a paper disc will increase the number of vehicle owners attempting to avoid the tax.
But the Government is confident that this will not be the case. In place of the disc, recognition cameras will be put in place on roads to track vehicle number plates. A central computer system will monitor the cameras, and any vehicles detected which have not been taxed will be liable for a fine.
The Driver and Vehicle Licensing Agency (DVLA) will send vehicle owners a reminder to renew, including a reference number, which individuals can use online to pay in instalments or set up a Direct Debit. As with the current system, owners will also need the reference number from their vehicle log book.
Direct Debits can be set up from 1 November, and certain factors must be taken into account when deciding which payment frequency to choose. For monthly and six-monthly payments, a surcharge of 5% will be applied. A yearly payment will incur no fees.
Certain exceptions apply when paying Direct Debit. The service will not be available to first registration vehicles, fleet schemes or HGVS paying the Road User Levy.
Important for those buying or selling vehicles: on the date of the changeover any vehicle tax owners currently have will not be transferred as with the current system. Instead, this will be refunded for the number of months already paid and they will have to get tax for their new vehicle.
A spokesperson for the Treasury said the new system would 'make dealing with Government more hassle-free'.
The status of your vehicle can be checked online here.