R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
THE UK RESEARCH AND DEVELOPMENT TAX CREDIT SCHEME A GUIDE FOR THE MOTORSPORT AND HIGH PERFORMANCE ENGINEERING INDUSTRY
The Motorsport Industry Association (MIA) is the world’s leading, and by far the largest, trade association for motorsport’s performance engineering, entertainment, services and tuning industry. It represents the specialised needs of this highly successful Industry which, although extending throughout the world and rapidly expanding in developing nations, is largely centred here in the UK.
Companies within MIA membership embrace a wide variety of disciplines including; motorsport and performance engineeering, race and rally teams, governing bodies, motorsport services, research organisations, race circuits, legal and financial, sponsorship and marketing, universities and colleges amongst many others. Motorsport Industry Association Contact: Katrina BriggsTel: 02476 692600 [email protected]
www.the-mia.com Carrim Bundhun [email protected]
This guide has been created to provide advice to those involved in research and development within the UK motorsport and performance engineering industry. It will answer these questions:
• WhatistheR&DTaxCreditSchemeintheUK?
• Howcanitdeliversignificantbenefitstocompaniesintheindustry?
• Whichcompaniesdoesitapplyto?
• HowcanaUKbusinessbegintheprocessofmakingaclaim?
• Howtomaximisethevalueoffutureclaims.
The R&D Tax Credit scheme may, at first, seem complex and difficult to understand which may, sadly, deter some companies from claiming their entitled tax relief - this guide aims to address this problem.
Over the past year the MIA, generously supported by our professional partners, has delivered a programme of face-to-face workshops to guide companies through the R&D Tax Credit scheme. Knowledge from this programme has led to this specialised guide for the industry.
This guide will explain, in clear terms and illustrated by relevant, real industry examples, how this valuable and popular scheme works and how UK motorsport companies can take full advantage of it.
CONTENTS: AwelcomemessagefromtheMIA 4
1. UNDERSTANDING THE R&D TAX CREDIT SCHEME WhatistheR&DTaxCreditscheme 5
HowmuchistheR&DTaxCreditschemeworth 5
HowisR&DTaxReliefcalculatedforanSME 6
LargeCompanyScheme 6
R&DExpenditureCredit(RDEC) 6
What’sholdingtheindustrybackfrommakingR&DTaxCreditclaims 6
WillyourbusinessqualifyforR&DTaxCredits 7
2. DEFINING RESEARCH AND DEVELOPMENT Whattheofficialguidelinessay 8
Whatisan‘advance’ 9
Whatismeantby‘scienceandtechnology’ 9
Whendoesdesignbecomeresearchanddevelopment 9
WhichcostsqualifyforR&DTaxRelief 10
The‘wholecar’concept 11
DoestestingqualifyforR&DTaxRelief 12
Research&DevelopmentAllowanceforcapitalexpenditure 12
SMEPayableTaxCreditforlossmakingcompanies 12
VoluntaryAdvanceAssuranceforsmallerbusinesses 13
Asummaryofrecentchangesandimprovementstothescheme 14
3. FINDING A WINNING FORMULA Harris&CoadviseaRaceTeamtohelpprovideinvestmentforthefuture 15
R&DTaxSpecialistsadviseonaF1coolingsystemreliefvalve 16
PwChelpdevelopamethodologyforacompanytoclaimR&DTaxCredits 17
4. GETTING STARTED FivesimplestepstowardsmakingaclaimforanR&DTaxCredit 18
5. PATENT BOX Whatisqualifyingincome 20
Whatisqualifyingdevelopment 20
ActiveManagementcondition 20
MakingaPatentBoxclaim 20
PhasinginofPatentBox 21
PatentBoxTaxRelief-consultationandproposedchanges 21
6. WHERE CAN I GET MORE INFORMATION AND ADVICE? Howlongdoesittaketocompiletheevidenceneededforaclaim 22
Ifnorecordsofstafftime/materialscommittedtopreviouslycompletedprojectswerekept,
cancostsstillbeclaimed 23
WhathappensifHMRCwanttoaudityourclaim 23
Whathappensifprojectsaresubsidised 23
Formajor,multi-disciplinaryprojects-canmorethanonecompanyclaimforthesameproject 23
Bymakingaclaim,won’tweberevealingconfidentialinformationaboutuniqueproducts,performances
orprocesseswehavedeveloped 24
Wearenoteligibletomakeaclaim,arethereanyotherincentivesavailableforresearchanddevelopment 24
FurtherinformationontheR&DTaxCreditscheme 24
APPENDIX 1: ProgrammePartners 25
R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
5
A WELCOME MESSAGE FROM THE MIA
I have long said that if your company operates in the engineering world of motorsport, in some way, then you are very likely to qualify for a R&D Tax Credit, so get claiming. Why just one in three motorsport and high performance engineering companies claim these credits completely baffles me!
Our companies continually make the world’s best products as a direct result of endless R&D - we ‘race prototypes’ for heaven’s sake!
I am pleased the MIA has created, with our professional partners, this useful guide to the world of R&D Tax Credits, as they relate to our industry. I know you will find this of real value as it helps you along the potentially profitable road of securing a tax credit for your business.
Check this latest information to maximise your current claims or before you start on the process - an unbeatable wealth of relevant knowledge from the best R&D professional advisers, with specific motorsport knowledge, is included.
These tax credits have, literally, changed the fortunes of many enlightened people in motorsport. Collectively millions of pounds have been re-invested in R&D as a direct result, making all those who claim ever more competitive in a tough world. If you haven’t yet claimed - large or small - please make 2016 the year you get onto this scheme and you can claim for all qualifying R&D undertaken over the past two years.
The UK is one of the most pro-active countries in regard to such tax credits and the offer from our government is amongst the most generous in the world. Their aim is simple - to encourage innovation and increased spending on R&D activities by UK companies and, in recent years, the rates have increased significantly to further incentivise companies to claim. Make sure you are one of them, please.
The MIA team, together with all our professional R&D tax partners, are here to help you gain the maximum benefit from your R&D Tax Credit claim, so please make full use of our offer.
It will be our pleasure to secure your success.
Good luck and best regards,
Chris Aylett, Chief ExecutiveMotorsport Industry Association (MIA)
1. UNDERSTANDING THE R&D TAX CREDIT SCHEMEIf your business is liable for UK Corporation Tax...then you could be missing out on this relief
WHAT IS THE R&D TAX CREDIT SCHEME?
EachyeartheR&DTaxCreditschemefromHMRevenue&Customs(HMRC)providessome£1.75
billionintaxincentivestoencourageinvestmentininnovationandincreasedR&DspendingbyUK
companies.Itisoneofthemostcompetitiveofsuchschemesintheworld.
Themoreinvestmentismadeinresearch,developmentandtechnology,thegreaterthebenefits
toindividualcompaniesandthewiderUKeconomy.Investmentbringsaddedvaluetobusinesses
helpingthemtoremaincompetitiveandsomakesaninvaluablecontributiontoeconomicgrowth.
Putsimply,theR&DTaxCreditsystemencouragesandrewardsinvestmentinresearch,development
andinnovationbyallowingcosts,includingthoseofstaff,onrelevantprojectstobeclaimedbackas
reliefforCorporationTax.Thiscanresultinsubstantialsavingsforthecompanyinvolved.
TheUKR&DTaxCreditscheme,whichbeganin2000,continuestoenjoystronggovernment
support.IntheMarch2015Budget,forexample,thegovernmentannouncedincreasesintaxrelief
undertheschemeforsmallandmedium-sizedenterprises(SMEs)applyingtoR&Dspendingfrom1
April2015.Throughongoingconsultationwithbusinessandtaxprofessionals,HMRCcontinuesto
considerwaystoimprovetheefficiencyandeffectivenessofthescheme.
TheUKmotorsportandhighperformanceengineeringindustryisamongthemostinnovativeinthe
world.Surprisingly,thisoutstandingpositionisnotreflectedbytherelativelylowleveloftakeupof
theR&DTaxCreditscheme.Lessthanoneinthreecompaniesfromthissectorhavetakenadvantage
ofthebenefitsunderthescheme1meaningthereishugefuturepotentialformoretodoso.
Theschemewillnotapplytoallthoseinthisindustrybutasthe‘endproduct’ofmuchofthe
engineeringworkisincreatingandracing‘prototype‘solutionsthefigureshouldbefarhigher.It
seemsmanywhocouldbenefitareunnecessarilyrulingoutwhatis,currently,theUKgovernment’s
singlelargestareaoffinancialsupportforbusiness.
Aswithanytaxscheme,thecriteriaforeligibilityandtheprocessforclaimingtaxcreditscanseem
complex.Thisguideisnotablueprintforsecuringtaxcredits-butitshouldhelpyoutounderstand
thescheme,assesswhetheritcouldbeworthwhileforyourbusinessand,ifso,gettheprocess
started.
HOW MUCH IS THE R&D TAX CREDIT SCHEME WORTH?
SincetheR&DTaxCreditschemewasfirstintroducedintheUKin2000,some42,000companies
acrosstheUKhavebenefitedfromnearly£11.5billionintaxrelief.Theschemeisincreasingly
becomingpartoffutureinvestmentplanningformanycompaniesinthewidereconomy.
TheamountofsavingstobemadefromR&DTaxCreditswilldependonthesizeofyourbusiness.
Therearetwoschemesforclaimingrelief:
• TheSMESchemeappliestocompanieswithunder500employeesandeitherofthe
following:anannualturnovernotexceeding€100millionorabalancesheetnot exceeding€86million
• TheLargeCompanySchemehas,sinceApril2013,beenfurtherdevelopedastheR&D
ExpenditureCredit(RDEC).
Whilstotherfactorsmaycomeintoplay,broadlyspeakingbusinesseswhichqualifyasanSMEcan
expecttoseeanetcashsavingofupto30%ofrelevantcosts,andlargerbusinessesasavingofup
to11%.
Eachyear,around30%ofclaimscomefromthosemakingaclaimforthefirsttimeandtheaverage
claimforSMEscurrentlystandsataround£46,000.ThoseSMEsmakingclaimsinsubsequentyears
doevenbetter,e.g.companiesmakingsixormoreclaimshaveanaverageannualclaimof£61,0002.
UK R&D TAX CREDIT SCHEME - FACTS AND FIGURES
TheUK’ssinglelargestfundingsourceforbusinessresearchanddevelopment
£11.4billionsuccessfullyclaimedbyUKcompaniesbetween2000and2014
CorporationTaxrelieforrebateofupto30%ofrelevantcosts
Anaverageof£46,000inannualclaimsforSMEcompanies
1 ‘Renewing the Evidence Base of Britain’s Motorsport Valley® 2013’: published by Motorsport Research Associates 2013
2 HM Revenue & Customs, 2015. Working Paper 17 – An evaluation of research and development tax credit. [online] Available at: http://www.the-mia.com/assets/hmrc-evaluationofrdtaxcreditworkingpaper17.pdf [Accessed 3 December 2015]
R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
76 R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
Claimscanbemadeforcostsincurredonprojectsundertaken,andincludedintheaccounts,over
theprevioustwofinancialyears.Forprojectsundertakenfrom1April2012,thereisnominimum
spendontheamountofresearchanddevelopmentbeforeyourbusinesscanclaimtaxrelief.
HOW IS R&D TAX RELIEF CALCULATED FOR AN SME?
UndertheSMEscheme,CorporationTaxreliefisgivenviaanadditionaldeductioninthetax
computation.Forqualifyingexpenditureon/after1April2015anadditionaldeductionof130%of
theeligibleexpenditureisallowed.AtaCorporationTaxrateof20%,thisresultsinasavingof£26
forevery£100ofqualifyingexpenditure(NBforexpenditurebetween1April2012and31March
2015theenhancementis125%).Forloss-makers,thelosscanbesurrenderedforacashback.
LARGE COMPANY SCHEME
UndertheLargeCompanyscheme,CorporationTaxreliefisgivenviaanadditionaldeductioninthe
taxcomputation.Forqualifyingexpenditureincurredon/after1April2015anadditionaldeduction
of30%oftheeligibleexpenditureisallowed,ataCorporationTaxrateof20%-thisresultsinatax
savingof£6forevery£100ofqualifyingR&Dexpenditure.
NotebelowthattheLargeCompanyschemeiscurrentlytransitioningtotheR&DExpenditureCredit
(RDEC)andwillnolongerbeavailableforexpenditureon/after1April2016.
R&D EXPENDITURE CREDIT (RDEC)
RDECwasintroducedforexpenditurearisingon/after1April2013tograduallyreplacetheLarge
Companyscheme,describedabove.Forexpenditureupuntil31March2016,largecompanies
canchoosetoelectintoeithertheLargeCompanyschemeorRDEC.OnceRDECclaimsaremade,
companiescannotthenreverttotheLargeCompanyscheme.
RDECisavailabletobothcompanieswithtaxableprofits,aswellasthoseinalossmakingposition.
From1April2015,thisprovidesforan11%P&Lcreditpayableonqualifyingexpenditure(between
1April2013and31March2015:10%).Thiscreditalsoappliestoprojectswhicharesubsidised,
grantfundedorsub-contracted,whateverthesizeofthebusiness(seeSection6).
RDECistreatedintheP&L(andCorporationTaxReturn)asincomereceivable(enhancingEBITDA*)
andistaxable.Aftertax(2015:20%)thenetcashtaxvalueis8.8%andis,therefore,slightlymore
advantageousthantheLargeCompanyscheme.
RDECcaneitherbeclaimedasanoffsetagainstataxliability,orcanberepaidtoacompanywithno
suchliabilities(subjecttomeetingfurtherdetailedrequirements,forexampleaPAYEcap).
WHAT’S HOLDING THE INDUSTRY BACK FROM MAKING R&D TAX CREDIT CLAIMS?
1. LackofknowledgeofR&Dactivity-whatconstitutesan‘advance’/R&D
2. LackofknowledgeofR&DTaxCreditscheme-definitions,process,work/time/effort
required
3. Motorsportbusinessesare‘timepoor’-notimetoinvestigateclaiming/preparing
claimsandsounabletomakeaninformed‘risk/reward’decision
4. PastexperienceofHMRC-businessesarereticentabout‘openingup’toHMRC,fearing
furtherinvestigationintocompanyaffairs.
WILL YOUR BUSINESS QUALIFY FOR R&D TAX CREDITS?
BeforereadingonandgoingintotheR&DTaxCreditschemeinmoredetail,youshouldworkout
whethertheschemeappliestoyourcompany.
ItwillonlyapplyifyourcompanyisliabletoUKCorporationTax(althoughyoudonothavetobe
actuallypayingUKtax).It’simportanttonotethatapayablecreditisavailableforbothlargeandSME
companieswhichhavemadelossesintheperiod.
IfyourcompanyisnotliabletoCorporationTaxandyouarenotdirectlyinvolvedininnovationthen
theR&DTaxCreditschememaynotseemrelevant.However,itcouldstillbeveryworthwhilefor
youtoconsiderhowtheschemecouldbenefitthosewithwhomyoucollaborateincludingyour
supplychain.Byensuringtheyclaimfullreliefthenyoucouldimprovetheircompetitiveoffertoyour
company.
Youshouldalsotakethetimetocheckoutothersourcesoffundingwhichsupportinnovationand
opportunitiestocultivatenewideas(seeSection6).
Are you liable to UK Corporation Tax?
Limited Liability Partnerships (LLPs) are unable to apply
See Section 6 of this guide for other R&D funding opportunities
NO
YES
NO
READ ON
Are you involved in innovating, i.e.
• appreciablyimproving
• improvingperformance
• developingoraddingvalueto products and processes
Innovation might be planned or might emerge through the need to resolve a problem
Explore opportunities to work with your supply chain to unlock tax relief and value through product/process improvement
© LAT Photographic 2014
© LAT Photographic 2014
* Earnings Before Interest, Taxes, Depreciation and Amortisation
R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
8 R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
92. DEFINING RESEARCH AND DEVELOPMENT
Fortaxpurposes,thedefinitionof‘researchanddevelopment’isbroadanditcan,insome
circumstances,applytowhatmightotherwisebeseenasnormalday-to-daybusiness.
AccordingtoHMRCguidelines,researchanddevelopmenttakesplacewhenaproject,ora
componentofalargerproject,seekstoachieveanadvanceinscienceortechnology,throughthe
resolutionofscientificortechnologicaluncertaintiesthatarenotreadilydeduciblebyacompetent
professional.
ANYactivity,whichdirectlycontributestoseekinganadvancethroughtheresolutionofascientific
ortechnologicaluncertainty,canbeclassifiedas‘researchanddevelopment’fortaxpurposes.
WHAT THE OFFICIAL GUIDELINES SAY
HMRCusesacomprehensivesetofguidelinescompiledbytheDepartmentofTradeandIndustry
(DTI)in2004.3TheBIS(formerlyDTI)Guidelines(2004)areamplifiedaspartoftheHMRCCorporate
IntangiblesResearchandDevelopmentManual.4
Whatthemotorsportindustryneedstoknowcanbeputmoresimply,butitismostimportanttobe
clearastowhatismeantbythewords-‘advance’,‘uncertainty’and‘directlycontribute’.
PRINCIPLE BIS DEFINITION3
ADVANCE
UNCERTAINTY
WHAT IS AN ‘ADVANCE’?WHAT IS MEANT BY ‘SCIENCE AND TECHNOLOGY’?
WHAT IS AN ‘ADVANCE’?
Thismustrepresentanadvanceintheoverallknowledgeorcapabilityinafieldofscienceor
technology,notacompany’sownstateofknowledgeorcapabilityalone.Anadvancecanbean
appreciableimprovementtoanexistingproduct,processetc.
For example, a race team developing a race car from a road car, found that in high
speed corners, the standard engine suffered oil surges resulting in oil starvation
in some cylinders. Existing baffle designs in the sump failed to cure the problem.
New baffles were designed to retain sufficient oil in the sump to allow a constant
quantity of oil flow to the oil pump, so preventing oil shortages in cylinders.
WHAT IS MEANT BY ‘SCIENCE AND TECHNOLOGY’?
Itiscrucialforabusinesstodeterminewhetherpast,currentorfutureactivitiescanbeclassifiedas
scienceortechnology.TheBISGuidelines(2004)setoutthesespecificdefinitions:
• Scienceisthesystematicstudyofthenatureandbehaviourofthephysicalandmaterial
universe.Workinthearts,humanitiesandsocialsciences,includingeconomics,
isnotscienceforthepurposeoftheseguidelines.Mathematicaltechniquesare
frequentlyusedinscience,butmathematicaladvances,inandofthemselves,arenot
scienceunlesstheyareadvancesinrepresentingthenatureandbehaviourofthe
physicalandmaterialuniverse
• Technologyisthepracticalapplicationofscientificprinciplesandknowledge,where
‘scientific’isbasedonthedefinitionofscienceabove.Theseguidelinesapplyequallyto
workinanybranchorfieldoftechnology.
Businessesneedtoassesswhethertheirworkhas,initself,directlycontributedtoan‘advancein
scienceortechnology’.WorkthatisjustaprecursortoR&Dactivitiestobecarriedoutbyother
organisations,furtheralongtheprojecttimeline,doesnotqualifyundertheR&DTaxCreditscheme.
Thereis,intentionally,noofficial,definitivelistofactivitieswhichcouldberegardedasscientificand/
ortechnological.IndoingsothisavoidstheR&DTaxCreditschemefrombeingoverlyprescriptive.
Someactivitiesare,however,morelikelytofallwithinthecategoryof‘scienceandtechnology’than
others.Someofthesemayinclude:
• Thedevelopmentofnewproductsorproductionprocessesforcustomerprojectsorfor
thecompany’sownpurposes
• Theimprovement,oradaptation,ofexistingproductsorproductionprocessesfor
customerprojectsorforthecompany’sownpurposes.
Thisisnotanexhaustivelistbutwillgiveyouanideaofthetypesofworkthatcouldwellbeeligible
forR&DTaxCredits.Italsodemonstratesthatmanyoftheappropriatecriteriaapplytothekindsof
researchanddevelopmentworkwhichtheUKmotorsportindustryundertakes.
WHEN DOES DESIGN BECOME RESEARCH AND DEVELOPMENT?
Formanyprojects,companiesprovidearangeofservicesaroundthedesignofaproductwhichdoes
notrequireinnovationorresearchanddevelopment.Howeverwhensuchdesigns,developedby
thecompanies,areinnovativeandcanbeshownto‘advancescienceand/ortechnology’thentheir
potentialforqualifyingforR&DTaxCreditsshouldbeexplored.
Createorappreciablyimproveaprocess,productorservicewhich
incorporatesorrepresentsanincreaseinoverallknowledgeor
capabilityinafieldofscienceortechnology
Therearenoabsoluteindicatorsof‘appreciableimprovement’;
however,(hypothetic)recognitionof‘appreciableimprovement’bya
‘competentprofessional’isregardedasagoodstartingpoint
Whereknowledgeofwhethersomethingisscientificallypossibleor
technologicallyfeasible,orhowtoachieveitinpractice,isnotreadily
availableordeduciblebya‘competentprofessional’workingwithin
thesector
Includessystemuncertainty;scientificortechnologicaluncertainty
willoftenarisewhentranslatingsomethingalreadyestablishedas
scientificallyfeasibleintoacost-effective,reliableandreproducible
process,material,device,productorservice
Courtesy of Mercedes-Benz World
Courtesy of Xtrac
© Mercedes AMG Petronas Formula One Team
Courtesy of Xtrac
3 Department of Trade and Industry, 2004. CIRD81900 - R&D Tax Relief: conditions to be satisfied: BIS Guidelines (formerly DTI Guidelines) (2004) – text. [online] Available at: www.hmrc.gov.uk/manuals/cirdmanual/CIRD81900.htm [Accessed 3 December 2015]
4 HM Revenue & Customs, 2012. Corporate Intangibles Research and Development Manual (CIRD 00500, 10000, 60000, 70000, 75000, 80000). [online] Available at www.hmrc.gov.uk/manuals/cirdmanual/index.htm [Accessed 3 December 2015]
R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
10 R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
11
TheBISGuidelines(2004)makeclearthatwhen,toachieveadesignobjective,ascientificor
technologicaluncertaintywithinaparticularprojectneedstoberesolved,thentheactivitiesneeded
todothiswouldqualifyas‘researchanddevelopment.’Designactivitiesthatdonotdirectly
contributetotheresolutionofascientificortechnologicaluncertaintywithinaproject,ontheother
hand,wouldnotcountas‘researchanddevelopment’undertheseterms.
Whatisimportant,then,istodemonstratehowdesignactivitieshavedirectlycontributedto
achievinganadvanceinscienceandtechnology.Thedesignstagemustinvolvesomeresolutionof
uncertaintytocomply,orperhapsbeaprecursortosubsequentanalysisandtestingofthedesign,
providedthatthisworkisundertakenbythesamecompany.
For example,a specialist car manufacturer claimed R&D Tax Credits on the costs
of design work on a range of new models. Not only did the manufacturer spend
significant sums on designing cars of outstanding beauty - and had created a
market-leading brand as a result - they implemented new design processes that
incorporated ground-breaking technology. Great artistic design might win market
share, but to qualify for R&D Tax Credits, the specialist car manufacturer needed
to seek an advance in technology by attempting to overcome genuine uncertainty
of what is technically feasible. The company clearly demonstrated that it had done
so and the claim resulted in a significant tax payment from HMRC in respect of the
qualifying project activities.
WHICH COSTS QUALIFY FOR R&D TAX RELIEF?
ThemainsourceofcostsforresearchanddevelopmenteligibleforaclaimforR&DTaxCreditrelief
are:
• Staff:costsofstaff(includingsalary,bonuses,employers’NIC,pensioncontributions, butnotbenefitsinkind)directlycontributingtotheresolutionoftheuncertainty
inquestion.Forexample:technicalplanning;design;testing;analysis;and/orother
‘non-routine’activities;allcalculatedbasedonapercentageoftimespentonthe
relevantR&Dactivity.TimespentonQualifyingIndirectActivities(QIA)canalsoqualify
forclaimpurposes(seeparagraph5oftheBISGuidelines2004)
• Sub-contracted services:costsforsub-contractedservices.Forexample,wherea discretepartoftheprojectisgiventoathirdparty,suchastesting,thenreliefcanbe
claimedonupto65%ofthepaymentmadetothesubcontractor
• Externally provided workers:whereanexternallyprovidedworkerisbroughtinto workalongsidethecompany’sstaff,generally65%ofthecostcanbeclaimed(or
100%forconnectedparties*)
• Consumable items:revenueexpenditureonconsumableortransformablematerials, includingwater,fuelandpower,useddirectlyinundertakingresearchand
development.NotetheAutumnStatement2014clarifiedthatyoucannotclaimforany
R&Dmaterialsthatareincludedinaproductthatissold
• Software costs:whererevenueexpenditureisincurredonsoftwareemployeddirectly inR&D,includingQIA.IfsoftwareisonlypartlyemployedindirectR&Danappropriate
apportionmentoftheexpenditureshouldbemade.
Specialrulesmayapplyiftheexpenditureissubsidisedbywayofagrantorsubsidy(seesection6).
THE ‘WHOLE CAR’ CONCEPT
Companiesshouldn’tfallintothetrapofassuminga‘wholeracecar’willqualifyforR&DTaxCredits
throughoutitslifetime.Anyclaimmustbebasedonindividualprojectsinaccordancewithlegislation.
Section13oftheBISGuidelines(2004)defines‘whatistechnologicaluncertainty‘,butrefined
bySection14whichstatesthat‘improvements,optimisationsandfine-tuning,whichdonot
materiallyaffecttheunderlyingscienceortechnology,donotconstituteworktoresolveascientificor
technologicaluncertainty‘.
Preparingacartoachieveoptimumperformanceforeachmotorsporteventisconsideredtobe
coveredbySection14above.Similarly,strippingdownacaraftereacheventisnotrelatedtoa
specificprojectandasaresultwouldbenon-qualifying.
For example,when developing a new motorsport car the following costs can
normally be claimed:
• Design: new innovations such as new body shape to reduce drag or a new
chassis design to optimise performance. However, not cockpit ergonomics, nor
design using already known technology such as seats, front wing, etc., but this
may vary for each project
• Development: taking a car from CAD to prototype is mainly eligible for a
claim as is any necessary element to test the R&D design
• Testing the prototype normally qualifies as R&D testing
• Building a car is where R&D usually ends, but there may be some
‘spikes ‘of R&D activity where new technological problems arise and need to
be resolved
Thefollowingcostswouldnotnormallyqualify:
• Ineligible R&D costs,suchasrentandleasingtracksfortesting
• Routine project activities,e.g.whenanexistingproblemhasknownwaysto overcome
• Material costswhicharesold,forexamplewithincarssoldtocustomers
• Commercial and marketing work,unlessdirectlysupportingtheR&Dpartof theactivities
• Changing car specificationsforeachcircuitorevent,unlessnewinnovations
areincludedwhichrequiretesting.
WestronglyrecommendobtainingadvicefromHMRCoryouradviserstoestablish,inadvance,which
costsqualifyineachcase,whichwilldependontheirpurposeanduseintheproposedR&Dactivities.
Courtesy of RML Group
Courtesy of Sigmatex
Courtesy of RML Group
* One company connected with another, under common control (ICTA88 S.839)
R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
12 R&D TAX CREDIT GUIDELINESFOR THE MOTORSPORT INDUSTRY
13
DOES TESTING QUALIFY FOR R&D TAX RELIEF?
Companiesneedtobecarefulwhenclaimingforexpensesinrespectoftesting.Testing,initself,
isnotaqualifyingR&Dcostunlessanewandnoveltestingprogrammehashadtobedeveloped.
Qualifyingexpenditurerelatessolelytotestinganadvanceinscienceortechnology,notgeneral
testing.
Furthermore,itisonlyconsideredtobequalifyingR&Difthetestingisundertakenbythesame
businesswhichdesignedtheprototypeorifanSMEsubcontractstestingouttoanothercompany,
ratherthanjusthiringatrack.Inprinciple,thehireofavenueisnotaneligibleexpenseforeither
thecircuitorthecompanyusingthefacilities.However,incertaincircumstances,wherethetesting
relatestotestinga‘technicaladvance’thenthetimespenttestingonthetrackmaybeeligibleasan
R&Dexpense.
For example, if a company hires a track for testing, then time spent at the track
by company employees can be claimed, but payments to the track cannot, as hire
costs are not an eligible cost.
If a company pays the track to test a car (i.e. the track does the test work) then
as all the test work is being undertaken by the track and its employees, this is
‘subcontracted R&D‘ by the company and, as such, the costs may be claimed by the
company at 65%, if an SME (but not for large companies).
If a track or circuit is requested to develop a test programme for a car and then
tests and develops the car to the required specifications then…
• Ifthecircuittakesthecommercialriskoftheprogramme,beingonlypaidif
successful, it could claim R&D Tax Relief
• Ifthistestprogrammeis‘subcontractedR&D’fromthecompanytothecircuit,
then the costs can be claimed by the company at 65% if an SME, or by the
circuitifthecompanyis‘large’.
RESEARCH & DEVELOPMENT ALLOWANCE FOR CAPITAL EXPENDITURE
TheR&DAllowancegivesrelief,atarateof100%,forCapitalExpenditureincurredonR&Dactivity
whichisdirectlyundertakenbyatrader,providedtheR&Disrelatedtothetradecarriedon.
SME PAYABLE TAX CREDIT FOR LOSS MAKING COMPANIES
WhereanSMEcompanyhasmadelossesintheperioditisstillpossibletomakeaclaimfora
‘payabletaxcredit’.ThiswouldbeforthelesseroftheenhancedR&Dexpenditure(e.g.at130%)
andtheunrelievedtradinglossfortheperiod.Therateofthe‘payabletaxcredit’dependsuponthe
dateswithinwhichtheexpenditurewasincurred,asfollows:
1April2011-31March2012 12.5%
1April2012-31March2014 11%
From1April2014 14.5%
VOLUNTARY ADVANCED ASSURANCE FOR SMALLER BUSINESSES
FromNovember2015,HMRChaveintroducedanentirelyvoluntaryscheme,AdvanceAssurance.
ThiswillhelpsmallcompanieswhowanttoclaimR&DTaxReliefforthefirsttime,andhastobe
completedanytimebeforetheyfirstclaimforR&DTaxRelief.
ThebenefitisthatforthefirstTHREEaccountingperiodsafterclaimingforR&DTaxReliefforthe
firsttime,HMRCwillallowaclaimfromthoseontheAdvanceAssurancescheme,withoutfurther
enquiries.
Anycompanycan,ofcourse,applyforR&DTaxReliefwithoutvolunteeringforAdvanceAssurance.
Advantages of Advance Assurance
WhenapplyingforAdvanceAssurance,anHMRCspecialistwillhelpthecompanyunderstandand
complywiththeR&DTaxReliefconditions5.OncegivenAdvanceAssurance,thecompanycanthen
concentrateontheirbusiness,ratherthanonR&Dtaxclaims.Inaddition,AdvanceAssurancegives
proofthatthecompanywillgetR&DTaxReliefwhichmayhelpsecurefunding.
Who can apply for Advance Assurance?
AnycompanycanapplyforAdvanceAssuranceifit’splanningtocarryout,orhaspreviouslycarried
outR&D,andcanmeetcertainconditionsatthedateofapplication,whicharethat:
• Ithasn’tclaimedR&DTaxReliefbefore
• Itsannualturnoveris£2millionorless
• Ithaslessthan50employees.
Theseconditionsmayapplyevenifacompanyispartofagroupofcompanies,butitisbesttocheck
whocan’tapplyforAdvanceAssurance5tobecertain.
IfthecompanyplanstocarryoutmoreR&Dinthefuture,thenHMRCwillmakecontact,afterthe
firstclaimissubmitted,tocheckfutureR&DmatchesthedetailsgivenintheAdvanceAssurance
application.
ProfessionalagentscanapplyforAdvanceAssuranceonthecompany’sbehalf.
WhenHMRCcontactsyoutodiscussyourapplication5,they’llneedtotalktoacompanydirectoror
anemployee(forexample,researchmanager),howeveryouragentwillbeabletocontribute.
5 HM Revenue & Customs, 2015. Corporation Tax: Research and Development (R&D) Relief: Advance Assurance [online] Available at www.gov.uk/guidance/research-and-development-tax-relief-advance-assurance [Accessed 3 December 2015]
Courtesy of Sigmatex
© LAT Photographic 2014