ACCA ATX UK Syllabus A4. Corporation Tax - Research and development expenditure - Notes
Research and development expenditure
In order to encourage more spending on research and development expenditure
additional tax reliefs are given for qualifying research and development expenditure incurred by companies.
There are separate schemes for Small&Medium companies and Large companies.
The exam question will tell you what size the company is.
Qualifying allowable revenue research expenditure includes:
Materials
Staff* costs (salary + Class 1 secondary national insurance)
Computer software [Not Hardware]
Power, water, fuel
*If subcontractors are used, only 65% of the amounts paid will qualify.
Scheme for SME:
If the company spends money on qualifying R&D, they get enhanced relief which means that they can deduct an additional 86% of qualifying expenditure for tax purposes.
If the deduction creates a trading loss, it may claim a cash repayment from HMRC this is called a R&D tax credit which is 10% of the surrendered loss.
If this treatment is taken, then the surrendered loss cannot be carried forward for future relief.
Illustration
K plc. Is a profitable manufacturing company.
It is a small enterprise for the purposes of R&D.
The company has recently decided to investigate the market for a new type of equipment and has spent the following amounts in the year ended 31/12/2023:
Market research £8,000
Staff directly involved in researching the project £20,000
Administrative support for the R&D department £5,000
Heat and light in the R&D department £9,000
New software £4,000
An agency for temporary R&D staff £10,000
What tax relief is available in respect of this expenditure?
Solution:
Allowable expenses that qualify for the enhanced tax relief:
Staff £20,000
Heat and light £9,000
Software £4,000
Total £33,000
100% + 86% = 186% * £33,000 = £61,380
Agency staff £10,000 + (£10,000 *65% *86%) = £15,590
Enhanced relief = £76,970
Note:
Already charged £43,000
Additional to be charged (£76,970 - £43,000) = £33,970