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R & D Relief and IP

Hi

We have a client that has just completed a R and D claim. However we would like to recognise the IP on the balance sheet. Has anyone done this before? My concern is that the R and D is usually showing in the profit and loss account but we would want to recognise the costs of the IP on the balance sheet.

Any advice would be great or where to start reading. I found this but thought it might be a bit out of date http://www.hmrc.gov.uk/manuals/cirdmanual/cird81550.htm

thanks

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By afairpo
25th Feb 2013 13:37

Not specifically required to be on P&L

The legislation for R&D tax relief (Part 13 CTA 2009) doesn't specifically require that the qualifying expenditure be shown on the P&L account provided that it's revenue expenditure under tax rules - in contrast with (most of) the provisions in respect of the corporate intangibles tax rules.

For example, s1124(b), in respect of staffing costs, states that the qualifying costs "… are those paid to, or in respect of, directors or employees who are directly and actively engaged in relevant research and development". Where the costs are shown in the accounts isn't part of the definition.

Plus the point is confirmed in s53 FA 2004 - "Expenditure by a company on research and development, if not of a capital nature, is not prevented from being regarded for tax purposes as deductible in computing profits by reason of the fact that for accounting purposes it is brought into account by the company in determining the value of an intangible asset."

Hope that helps.

Thanks (1)

Just to add...

... the link you've referred to is accurate, but irrelevant to your question. It used to be the case that a small/medium-sized company had to own the IP as a result of the R&D in order to claim R&D relief. It's that requirment that has been abolished.

As Anne says, it's perfectly possible (if the requirements of SSAP 13 or IAS 38, as appropriate, for capitalisation are met) to capitalise the R&D (if the expenditure would, but for the ability to capitalise it under GAAP, be of a revenue nature), but claim R&D relief.

I recall Anne mentioning in the past though that once the criteria to capitalise the costs are met, that might be an indicator that the underlying project has resolved the relevant scientific or technologogical uncertainty, meaning that R&D (for tax relief purposes, at least) has ceased.

Once you've claimed R&D relief though, you can't also claim for amortisation/impairment of the asset (to the extent that R&D relief has been claimed).

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By afairpo
25th Feb 2013 13:58

Thanks to George!

I may have been a bit focussed in my answer!

Yes, if the economic return on the R&D is sufficiently certain to mean that some or all of the costs are capable of being capitalised under the appropriate accounting standards then there is a possibility that HMRC could argue that those costs which have been capitalised were incurred after the scientific/technological uncertainty was resolved.  The accounting standards usually allow capitalisation of costs only where there is some certainty that the asset developed has some reasonably certain future benefit to the business. It's not entirely incompatible with R&D relief still being available, but I'd advise caution.

And also yes, if you claim R&D relief on the capitalised asset, you can't get amortisation etc for the qualifying R&D expenditure under the corporate intangibles tax rules as well.

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25th Feb 2013 14:39

That's perfect, thanks a lot. First time I have asked a question in all the years.

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By merlyn
26th Feb 2013 08:12

Grant Tree

One of the R&D specialist firms (GrantTree) did a blog post about R&D Tax Credits and Capital Expenditure which you may find useful -

http://blog.granttree.co.uk/post/26894339763/r-d-tax-credits-and-capital-expenditure

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