UK tax

R & D for small companies

HMRC have published a really well-presented PDF booklet “Research & development tax relief” – it was updated November 2016.

It covers most of the basics and could be used in a variety of ways:

  1. Distribute a copy to staff who may become involved in advising clients.
  2. Add it to you own CPD reading list.
  3. Send a copy to clients who may qualify and follow up with a visit or phone call.

This is still seen by most advisers as “beyond their ken…” which is a shame as there are real win-win benefits for clients and your firm. The case studies are particularly instructive – pages 34 to 40 – for example:

 ICT  – The computer games industry provides particularly good examples of innovative projects that do meet the requirements of the R&D schemes and also examples of projects which do not.

No matter how original and inventive the game storylines are, these are not scientific or technological advances. The important criterion is not ‘what’ is produced but ‘how’.

A company realised that each object on a game’s screen had to be programmed in respect of its interaction with all the other objects. As the game became more complex, more objects were introduced and the amount of code required rose exponentially. The solution was to programme the properties of each object. When the objects interacted, a separate code was no longer required as the inherent properties produced the outcomes. The qualifying expenditure on developing this innovative code qualified for R&D relief.

The ICT sector is so fast-moving that further advances overtake new and ground breaking developments very quickly. What is important is that a project represents an advance at the time of development. New encryption and security techniques are being developed regularly and in many cases give rise to further advances. Even if the technique is quickly rendered redundant it will probably qualify for relief. The same applies to new search engines using new search methods.

Many advances are in the software field but advances in hardware are not unusual and will qualify for R&D relief if they are designed to overcome a scientific or technological uncertainty. Equally, very small companies dealing in subcontracted work may qualify if the work undertaken is sufficiently innovative, even if the larger contractor’s project does not qualify.

The booklet can be downloaded at http://www.hmrc.gov.uk/gds/cird/attachments/rdsimpleguide.pdf

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