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R&D tax relief deadline looming

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22nd Jan 2008
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Companies have only two months left to back-claim Research and Development (R & D) claims for last six years.

Changes to regulations mean that R&D claims for any period ending between March 31 2002 and March 31 2006 must be made by 31 March 2008. The date marks the end of a transitional period to ease in a change to the R&D relief rules, which will allow companies only two years to make a claim for relief instead of six.

The government introduced the R&D tax credits scheme in 2000. Large companies – those employing more than 250 people - can claim 125 per cent of qualifying R&D expenditure when calculating profits for tax purposes, while the rate for small and medium sized enterprises (SMEs) is 150 per cent. In some cases, SMEs can surrender the relief to claim tax credits of up to £240,000 in cash from HMRC. The minimum eligible spend is £10,000 per 12 month period.

HMRC’s claim criteria must be clearly documented, explained in detail against the DTI guidelines, eligible expenditure calculated and audit trail evidence provided. Few companies have either the expertise or indeed the resources to compile such a claim in order to gain maximum benefit from the scheme.

David Marshall, Business Development Director of Alma Consulting comments: “There have been cases where businesses have been fined up to 100% of their claim, simply because they’ve over-claimed due to poor advice or lack of knowledge of the complex scheme requirements. This has had a damning effect on other companies who are now under-claiming in the vain hope of avoiding the scrutiny of the HMRC and its penalties.”

Philip Feibusch, managing partner at Bourne Business Consulting LLP, said: “Putting together a claim is complex – relevant costs must be identified and the R&D activity described – so it may be appropriate to seek professional help from an expert in the tax field. Although the process may be demanding, this valuable tax relief is certainly worth the effort involved in preparing a claim.”

“I’d advise UK companies that think they might be eligible to consult an expert who can identify eligible projects for an optimum claim, will ensure the paperwork is compliant with HMRC’s requirements, will meet the pending deadline and, most importantly, employs trained technical experts who can explain new scientific and technological advancements in HMRC’s language.”

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