Post on 24-Aug-2020
An introduction into
The Research & Development and
Capital Allowance Tax Credit
Legislation
by Robert Plant
▪ Specialists in R&D, Capital Allowances and Patent Box tax relief
▪ 14,000 Clients - identified a total of £230m over 11 years
▪ Offices based in Manchester, London and Edinburgh
▪ ISO 9001 Certified – “serious about our business” – rigorous & thorough
▪ CPD Accredited For CA and R&D
▪ The team of 100 in-house experts includes; Surveyors, Tax Technicians, Auditors, Report Writers and Case Managers.
▪ Lead Auditor sits on HMRC RD Steering Committee
▪ No risk – Clients are only charged if we have identified a benefit to be claimed
WHO ARE CATAX?
We’re proud to have long-standing partnerships with ICAEW, the Law Society, ACCA and IFA, and CIMA. These professional bodies know that Catax will provide unrivalled knowledge and service to their members and their clients.
PROFESSIONAL PARTNERS
COMMERCIAL STRATEGIC PARTNERS
THINK ABOUT PERCEPTION
Business Transformation
Change
Growth
White Coats &
Laboratories
HM Revenue & Customs defines R&D tax qualifying areas through the following guidelines:
▪ Unique▪ Overall Knowledge & Capability▪ Appreciable Improvement▪ Duplicating the effect
In all, there must be an element of:
▪ Scientific Advantage▪ Technological Advantage
R&D TAX QUALIFYING GUIDELINES
THE ACID TEST…
“Would a competentprofessional working in the
relevant field be able to readily deduce and find a solution to a
technological problemIf the answer is NO
Then You should have R&D activity”
R&D DEFINITION
SME▪ Turnover - Up to £80,000,000▪ 1 - 500 Staff▪ Balance Sheet - Under £72,240,000
Large▪ Turnover - Over £84,000,000▪ Balance Sheet - Over £72,240,000▪ 500+ Staff
SME COMPANIES MISSING OUT
There are substantial benefits
Demands Attention
WHAT MAKES UP THE TOTAL CLAIM?
Internal Costs
External Costs
Misc. Costs
▪ £100k qualifying spend over the last 2 years
▪ Accelerated To £230k
▪ Subtract the original £100k accounted in the P&L
▪ Remainder is £130k – R&D Pool
▪ @20% worth £26k
▪ @14.5% worth £33.3k
R&D TAX CREDITS
14 to
14.5%
225 to
230%
THE PROCESS
CLIENT JOURNEY – ½ DAY
Existing DocumentsAccounts, CT600, Tax Comp Requested
3 hours 25 to completion
3 ½ hours to completion
2 ½ hours to completion
3 hours to completion
½ hours to completion
First Call
Technical Call
Final Documents
Audit Visit
Post Audit Details
½ hours to completion
Report Complete
Capture Key Documents
Booking Technical Call
Identifying Areas of R&D
Identifying Further Narrative Detail for Report
Requesting Cost Information Related to R&D to Maximise Benefit
Industry: Private Hire (Taxi)
Areas of R&D:▪ Auto Cab Booking System▪ Bespoke IT Systems▪ Back Office Integration▪ Development of Oyster Card Type Payments
•Quick Stats • R&D Additional Costs £297K• Client Benefit £75.6K
CASE STUDY 1
Other qualifying activity can include:
Bespoke vehicle tracking system integration / Bespoke in vehicle terminal
Industry: Food Processing
Areas of R&D: ▪ Heat Testing ▪ Molecular Reaction Testing ▪ Flavour Development Time ▪ Oxygen Exposure Time ▪ Bespoke Picking Application▪ Packaging processes / Material testing for the
packaging.
Quick Stats • R&D Additional Costs £157.0k • Client Benefit £38.4k
CASE STUDY 2
Other qualifying activity can include:
Improvements to health and nutrition to meet new government legislation / Recreation of taste, texture without using allergens / New recipe development / Packaging processes / Material testing for the packaging / Increase in knowledge and capability in the science field of food technology
Industry: Brewing
Areas of R&D:• Bespoke Water Treatment Facility• Analysis of Local Environment – Water• Distribution• PH Levels – Treatment effective & safe• Enhanced Knowledge of Key Staff Members
Quick Stats• R&D Additional Costs £89.0k • Client Benefit £24.4k
CASE STUDY 3
Other qualifying activity can include:
Research into developing new flavours and products / Integrating non standard brewing ingredients such as fruits , yogurt etc. into the brewing process / Integrating novel hop types and yeasts strains into the brewing process / E-Commerce / IT platforms / Purchase ordering software / Large-scale production and distribution.
▪ Accommodation & Food
▪ Admin & Support Services
▪ Agriculture, Forestry, Fishing
▪ Arts, Entertainment & Recreation
▪ Construction
▪ Contact Centre
▪ Distribution
▪ Education
▪ Electricity, Gas, Steam & Air
▪ Specialist Care Homes
▪ Financial & Insurance
▪ Health & Social Work Providers
▪ Information & Communication
▪ Manufacturing
▪ Mining & Quarrying
▪ Online Retail
▪ Other Services Activities
▪ Professional, Scientific & Technical
▪ Pharmacy
▪ Public Admin, Defence & Social Services
▪ Real Estate
▪ Training Organisations
▪ Transport & Storage
▪ Water, Sewerage and Waste
▪ Wholesale & Retail Trade, Repairs
“SOME” QUALIFYING SECTORS
• I don’t think it applies to me
• Sounds too good
• My accountant can cover this
• Great idea but sounds it could take a long time
• Great idea but lets look at it in a few months
FREQUENT COMMENTS & QUESTIONS
“I was not fully aware of Research and Development tax credits until Catax came along. They were able to claim back on expenses I would never have believed to qualify as Research and Development activity.”
Milan Patel – Partner at King & King Chartered Accountants and Tax Advisors
“Working in partnership with Catax was a pleasure. They made the whole process really smooth and professional for my client and in turn, enhanced my reputation. My client was delighted when they received a R & D tax credit they did not know they qualified for’
Duncan Walker Partnership
A WORD FROM SOME ACCOUNTANTS…
Capital Allowances, first introduced in the mid 1940’s are a statutory tax relief available to UK taxpayers under the condition of certain ‘qualifying’ assets.
‘Land and Building’ sits within the Fixed Asset Register on the Balance Sheet. This is where Capital Allowances relief can be extracted through a conservative 80%/20% split.
£2,217,997,649.84* is the estimated amount that has
gone unclaimed and subsequently lost
*Calculation based on HMRC Property Statistics
THE 'SPLIT’
Qualifying Items Extracted by Catax Solutions
Land and Building Element of Purchase Price
Owns a commercial property
UK tax payer
Pension funds
Charities
Local councils, Army, Navy, Police buildings
Plant & Machinery Integral features
• Sanitary appliances (Inc toilets, sinks, showers urinals, cubicles
• Carpets
• Fitted kitchens / cabinetry / bars / seating / reception counter
• Sprinkler systems
• Telephone, TV, data cabling & pointsfire alarm & smoke detectionNurse / patient call system
• Air conditioning
• Building management system
• Hot & cold water services
• Electrical installations
• Lifts
• Drainage
P&M IF
Plant & Machinery Integral features
10%
20%
20%
25%
25%FHL
Care home
Pub
Dental surgery
Warehouse
18%
P&M
£100,000
£18,000
WDA = 18%
Tax rate = 20%
£3,600
8%
IF
£100,000
£8,000
WDA = 8%
Tax rate = 20%
£1,600
Property type: Office with warehouse
Purchase price: £459,000
Unclaimed Capital Allowances: £75,990 (17%)
Client benefit: £15,198
Property type: Hotel
Purchase price: £15,469, 950
Unclaimed Capital Allowances: £5,779,881
Client benefit: £1,155,976
• Capital allowance claim was based on purchase price
• Claim could be made with out the vendors involvement
• There was no time limit in which the claim had to be made
• Capital allowance claim is now restricted to the vendors purchase price
• Both the vendor and the buyer have to cooperate
• 2 year time limit is now in-place
Less than £250,000 More than £250,000 Less than £500,000 More than £500,000
£25,000 of unclaimed CAs £50,000 of unclaimed CAs
Individual/partnership:
7% of the identified allowances
+
Survey fee of £750
Ltd company:
5% of the identified allowances
+
Survey fee of £750
Survey fee structure
• £500,000 - £2,000,000 = £995
• 2,000,001 - £5,000,000 = £1,500
• £5,000,001 = £2,500
Individual/partnership:Same as lower threshold
Ltd company:Same as lower threshold
10% of the identified CAsNo survey fee
Introduction to Patent Box
The Patent Box is the government’s way
of rewarding companies, which are
driving innovation, whilst encouraging the
development of new patented inventions in the UK.
WHAT IS PATENT BOX ?
• The Patent Box is a tax relief:
- enables companies to pay a reduced10% rate
corporation tax on profits from patented inventions,
- rather than the standard 19% or 20%.
• R&D is a tax relief on the cost of being innovative, the
Patent Box gives tax relief on the profits made by being
innovative.
• Average annual claim for a SME is £43,000
Stretches all the way up to £2 million for large companies.
• Patent Box has synergy with R&D = end to end service
.
WHAT IS PATENT BOX ?
•. Open to UK companies who own or exclusively
license-in patents granted in the UK and Europe.
• In order to benefit, company must make a profit from
patented inventions.
• The relief applies not only to profits from sale of
patented inventions but also to products which
incorporate a patented invention.
– For example, profits from the sale of a car could be
eligible for the relief providing it contains a patented
component, such as brake pads.
WHO CAN BENEFIT?