ATXP6 UK
NOTICE: Register for the September exam until 11th May!!!

All students that had entered for the June 2020 exam will have received a credit on their MyACCA account (unless their employer or learning provider paid ACCA directly).

We recommend you to use this refund to enter for the September 2020 exams, this will secure your entry and location of choice. 

You will also benefit from the cheaper Early Exam Entry fee if you book by 11th May.

Question 3b

Dent Ltd requires advice on the corporation tax treatment of its expenditure on research and development (R&D) activities

Dent Ltd:
– Will be incorporated and start trading on 1 July 2019.
– Will undertake a research project to develop an innovative new process related to its trade.
– Will be a small enterprise for the purposes of R&D expenditure.
– Will prepare its first set of accounts to 30 June 2020.
– Will make wholly taxable supplies for VAT purposes.

Dent Ltd – budgeted R&D expenditure for the year ending 30 June 2020:

£
Specialist equipment 110,000
Property costs 46,000
Consumables 12,000
Staff costs 185,000
––––––––
353,000
––––––––

– The above figures are all exclusive of VAT, where applicable.
– The property costs entirely comprise heat, light and water expenses.
– The staff costs include a fee of £25,000 to an agency (which is VAT registered) for the provision of an unconnected external contractor’s services for the year.
– The remainder of the staff costs wholly relate to amounts payable to, or on behalf of, Dent Ltd’s employees, including pension contributions totalling £14,000.
– The property costs, consumables and agency fees are incurred evenly throughout the year.

Required:
(b) Explain the corporation tax treatment of the research and development (R&D) expenditure of £353,000 to be incurred by Dent Ltd in the year ending 30 June 2020, and, on the assumption that Dent Ltd registers voluntarily for VAT with effect from 1 July 2019, calculate the amount of the deduction which will be available in respect of this R&D expenditure for corporation tax purposes. (6 marks)