Are NI com­pa­nies miss­ing out on tax re­lief?

Belfast Telegraph - Business Telegraph - - News - Byeu­ge­neo’neill, As­so­ci­ate­di­rec­tor, Cor­po­rate­tax @grant­thorn­tonni For fur­ther in­for­ma­tion or advice, Eu­gene O’neill can be con­tacted at eu­ Grant Thorn­ton (NI) LLP spe­cialises in audit, tax and ad­vi­sory ser­vices

It is widely ac­cepted that re­search and de­vel­op­ment (R&D) tax cred­its are among the most gen­er­ous tax re­liefs avail­able to UK com­pa­nies. Its aim is to en­cour­age UK com­pa­nies to in­vest in R&D by re­ward­ing qual­i­fy­ing in­vest­ment, and R&D tax credit regime has been struc­tured to pro­vide greater re­wards to small or medium sized en­ter­prise (SME) com­pared to large com­pa­nies.

For SMES, the R&D re­lief is availed of to re­duce cor­po­ra­tion tax li­a­bil­ity and, if it does not have a tax li­a­bil­ity, it can be used to gen­er­ate a cash payment.

What do the lat­est HMRC sta­tis­tics tell us about North­ern Ire­land R&D claims?

De­spite the fact that R&D tax cred­its were first in­tro­duced to SMES in 2000 and were ex­tended to in­clude large com­pa­nies in 2002, it would seem from the most re­cent HMRC sta­tis­tics that not all el­i­gi­ble NI com­pa­nies are aware they are en­ti­tled to this very gen­er­ous re­lief.

The lat­est sta­tis­tics show that NI com­pa­nies only make up 3% of all R&D claims sub­mit­ted in 2016/17, and re­ceive only 1.6% of the to­tal R&D ben­e­fit awarded to UK com­pa­nies.

Al­though the sta­tis­tics also show that NI com­pa­nies en­joyed tax breaks and cash ben­e­fits in the 2016/17 tax year of £55m, that is a sig­nif­i­cant re­duc­tion from the prior year when they re­ceived £10m more.

While the re­duc­tion in NI R&D ben­e­fits can be ex­plained in part by a slight re­duc­tion in claims from 2015/16, it is also the case that the av­er­age claim per NI com­pany is down 11%.

So are NI com­pa­nies miss­ing out?

In North­ern Ire­land there are many ex­am­ples of com­pa­nies that are mak­ing their first R&D claims de­spite un­der­tak­ing qual­i­fy­ing ac­tiv­i­ties for years. It is very likely there is still more NI com­pa­nies which un­der­take qual­i­fy­ing ac­tiv­i­ties but have still not claimed. It is also the case that some com­pa­nies are not claim­ing all their qual­i­fy­ing costs, this could be due to the com­plex­ity of the R&D leg­is­la­tion.

The po­ten­tial ben­e­fit of R&D tax credit claims is too valu­able to be missed or for all qual­i­fy­ing costs not to be in­cluded. The cash flow ben­e­fit to com­pa­nies alone can have a sig­nif­i­cant im­pact.

The good news is that it is not too late for 2016/17 R&D claims. R&D claims can still be sub­mit­ted for 12 months af­ter the tax sub­mis­sion dead­line — for ex­am­ple, a De­cem­ber 31 2016 ac­count­ing year end, a R&D claim can be made (or amended) be­fore the tax amend­ment win­dow shuts on De­cem­ber 31, 2018 (12 months af­ter the De­cem­ber 31, 2017 tax fil­ing dead­line).

Com­pany boards, and in par­tic­u­lar SME boards, need to be aware of R&D tax cred­its, and the po­ten­tial ben­e­fit. If in doubt spe­cial­ist R&D tax as­sis­tance should be sought to en­sure your com­pany un­locks the full value of the re­liefs to which it is en­ti­tled.

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