Research and Development (R & D) tax credits are a government incentive, which aim to encourage innovation across a variety of businesses. Depending on the number of working hours a company devotes to research and development, they can potentially lower their corporation tax payment or obtain a refund from HMRC.
Companies based in the United Kingdom are able to claim tax relief for their inventions if they dedicate time to developing new products/services, enhance existing ones, or expand their field’s general expertise.
R&D tax credits are available to companies in all types of industries. However, only certain companies that are subject to corporate tax are eligible to claim R&D tax credits.
It is paramount that limited companies who are making a claim, are engaged in activities that are believed to entail research and development, and that are aimed at improving science and technology.
For an experienced individual within a business, the R&D projects that are being claimed for must contain a certain degree of unpredictability. This essentially means that if the project produces questions that have individuals within the business unsure on answers, then it is a strong suggestion that the company is carrying out effective research and development activities.
If you feel your company are eligible for R&D tax credits, then consider the following questions:
Does your company create and develop new products?
Does your company create and test prototypes?
Does your company want to develop its processes?
Does anyone on your team have a scientific or technical background?
Quest Chartered Management Accountants (QCMA) describe below the impact on businesses through the government introduction of Making Tax Digital for Income Tax Self-Assessment (MTD for ITSA):
If you have no idea what Making Tax Digital for Income Tax Self-Assessment is, here is the government’s view:
“Digitalisation is a key process for business to undergo. The government are supporting this through Making Tax Digital (MTD); a digital service which is a crucial step in providing a more suitable modern digital service that will serve fit for the 21st century. The aim is to boost business productivity and efficiency by better assisting taxpayers and making the tax system more effective and resilient. MTD for income tax requires electronic records of their accounting and quarterly returns to HMRC from individuals subject to income tax on the profits of their profession, trade or property business.
The government have announced this month a delay to the introduction of MTD for ITSA, which was initially meant to be introduced in April 2023 but will now launch a year later in April 2024 for businesses and landlords with an annual business income of over £10,000 within the tax year beginning April 2024. General partnerships are going to be required to sign up to MTD for ITSA in April 2025. This change has come about due to the obvious current challenges businesses face, having to recover from the COVID-19 pandemic over the last year. HMRC now have more time to produce an efficient and robust service, with more time allowed for testing, and provides more preparation time for businesses that are required to join.
With the previous introduction of MTD for VAT-registered businesses, users of MTD are experiencing reductions in input errors and for many it is simply an extension of the way they previously operate. Many users report having increased confidence in the use of technology and managing their tax affairs, saying that they find it much easier to prepare and submit tax returns. Businesses with income tax obligations would be keen to enrol in MTD for ITSA and the digital approach can work for businesses of every size, with over 25% of companies below the VAT threshold having voluntarily chosen to join.”
However, I must question why on earth are the government introducing this? There are many obvious downsides to the introduction of MTD for ITSA. Initially, the government had promised free software for businesses to use but have now backtracked on their word, meaning that businesses will now have to either pay for the software or must pay someone else to submit returns for them. Many small companies used to file their own self-assessment, PAYE or VAT for free through the HMRC website but will now incur a cost for this. Having to go digital is an intimidating task for many in society not used to working with technology and would make their life a lot more difficult. There is no choice being given to these people as they are forced to use MTD. Deadlines will become more frequent with corporation and income tax returns joining VAT in having quarterly deadlines, causing a lot more hassle for businesses. Another complaint for users is reduced privacy as HMRC will be able to find certain data without the company’s knowledge.
MTD for ITSA can be argued as being just another way of the government getting its hands on the share of people’s income a lot sooner by making businesses declare income more often, giving businesses more of a burden administratively as well as the self-employed. Companies may actually become less efficient due to the added time they would spend on submitting returns and could negatively impact the government’s ability to budget and cashflow, with any economic shock like the current pandemic being harder to budget for. With payments on account still being around, taxpayers potentially face the headache of real-time payments as well as what they may owe under the current self-assessment schemes.
Nick from Quest Chartered Management Accountants describes how sole trader sub contractors can claim their tax refund for CIS.
As always, if you do need any help please call 0121 235 0315.
Just in case you were in any doubt what is important in business then here is some clarification:
If you are think of starting a business and would like to talk to a qualified accountant in Birmingham who actually knows what it’s like to start a run a business then please call me – 07754 51532
Nick Bonnaud ACMA
Don’t go to university – start a business instead!
Recent estimates put the average debt that university graduates will suffer at around forty four thousand pounds. This is an extraordinary sum, and has prompted me to question why there is no debate or even discussion about whether or not young bright people should start their own businesses instead of going to university.
I recognise that university can have such enormous value for those pursuing specific professional career paths. There is simply no way to advance in subjects such as medicine, geology or advanced sciences unless you have an appropriate and strong educational background. However, I also believe that there is a strong minority whose aspiration is to start a business of their own, and in a context in which graduates are likely to be paying debts into their fifties I feel it is about time that there was some debate as to whether entrepreneurialism could provide a genuine alternative for those motivated in that direction.
I was recently approached by two schools to speak about entrepreneurialism to fourteen and fifteen year olds as the subject now does appear on their curricula, and made it clear that I would be encouraging students to think about starting their own businesses – and both schools were immediately horrified.
The posh school said that all of their students were very bright and wouldn’t want anyone to dissuade them from going to university. The poor school said their students often struggled and they didn’t want anyone denting their (already fragile) aspirations to go into higher education.
Following this experience I followed up and I spoke to many parents, teachers and school administrators and it has become extremely clear that the educational system is wholly geared towards pushing students towards further education and other career aspirations, particularly entrepreneurialism, are discounted and even discouraged.
I recognise that starting a business represents a large degree of risk and is certainly not for everyone but my purpose in writing is to at least question why the status quo is so completely geared towards huge debts and further education when much more modest investment in a business could lead, for those who want it, to a much more rewarding business and life experience.
What do you think?
After the budget are you feeling hard done by?
At least you won’t be taxed twice – unless you run a business.
In amongst the winners and losers from yesterday’s budget one group seemed to have slipped under the media’s radar.
Hundreds of thousands of small business owners will now be taxed twice on the same profits.
For many years the logic has held that small business profits should only be taxed once – through corporation tax and not taxed again if dividends are paid out. The chancellor changed the rules yesterday and from April any shareholder that receives more than £5000 in dividends will find that the same profits will be taxed again at a starting rate of 7.5%.
The government has offered some explanation pointing to ‘Tax Motivated Incorporation’ as the target. This means that they want to stop the practice of setting up limited companies specifically to avoid tax. It is currently common practice for contractors, care workers and others to set up companies in which they are the only employee in order to pay less.
Several years ago legislation known as IR35 was brought in specifically to address this issue and the announcement yesterday signals the complete failure of HMRC to implement and police IR35 over recent years.
By proceeding as the government has, it has tarred the genuine small business community with the same brush and punished them for maintaining investments in their own business. The proposed cuts in corporation tax will not offset these changes and will not occur until 2017 and 2018.
Let’s hope the pain felt by small business owners has not damaged growth by then.
Nick Bonnaud ACMA
Quest Chartered Management Accountants