Posted by James Pearson on 08 Mar 2012

Research & Development (R&D) Relief Changes

HM Revenue & Customs have already announced three changes to Research & Development Relief which may make it beneficial to delay certain items of expenditure until after 1 April 2012.

From this date the relief available for relevant expenditure is due to increase from 200% to 225%. This will mean that for ever £1 of relevant expenditure on relevant research and development activities a company can claim £2.25 against profits for tax purposes rather than the £2 currently available.

Two other changes have been announced and are expected to be introduced from 1 April 2012. A £10,000 minimum expenditure condition is due to be removed meaning that relief will be available regardless of the level of expenditure. Currently if relevant expenditure totals less than £10,000 in an accounting period no R & D relief is available. This means it may be sensible to hold back on any smaller expenditure until after 31 March 2012.

The other change affects the tax credits available to a company that is loss making, either before or after claiming R & D relief. The loss relating to the R & D relief can be converted into a tax credit and paid to the company, allowing a cash flow advantage to R & D expenditure even for a loss making company. Currently, the cash payment is limited to the PAYE and NIC paid by the loss making company, but this limit is expected to be removed from 1 April 2012. This means that relevant expenditure should probably be delayed until 1 April if it is likely to generate a loss for the company after R & D relief has been claimed and the size of that loss means that the payable tax credits will exceed the company’s PAYE and NI payments.

For advice or a free initial consultation regarding Research & Development relief, please contact James Pearson on 01962 856 990 or by emailing james.pearson@taxinnovations.com.