Despite the sheer dullness of discussing R&D tax credits our clients soon realise the potential effects to their Corporation Tax bill these can have, and every time that they are examined it turns out there’s a lot more to claim than is first thought.
The idea of the UK Government’s tax credit programme is to a large extent to try and prevent a brain drain to other parts of the world, in particular to the US. Such brain drain effect is much less common currently as salaries for developers come at such a premium in California to name but one place that a high percentage of software and technology development is now outsourced and quite commonly to Eastern Europe where salaries are about one fifth of what is paid in the US. Naturally most countries in the western world have similar R&D programmes to protect their own technologies so there’s a strong argument to say the UK Government’s attempt is meaningless. That being said, the UK relief at 230% of qualifying expenditure is especially generous if you know how to take advantage of the rules.
The UK relief is especially useful to the small business which usually do not have any type of Government or EU grant in place and where such companies are not yet very profitable the R&D relief can extend quite uniquely to an actual payment from HMRC.