An important area in the Advanced Tax exam is Research and Development. This is the only expenditure on which we can claim tax relief of more than 100%.
The enhanced allowances are available on revenue expenditure directly relating to the research activities such as staff costs, materials, software, utilities, and subcontractor costs.
The amount of tax relief available is based on the size of the business.
SMEs claim an allowance of 230% and if this creates a trading loss, the trading loss can be exchanged for an immediate cash refund of 14.5% to help cash flow.
Large companies get a 13% tax credit in addition to the 100% deduction. The 13% tax credit is deducted from the corporation tax like double tax relief.
The strange thing about the 13% tax credit is that it is treated as taxable income for the company and is subject to corporation tax itself at 19%.
As the tax credit is taxable income, we refer to it as an ‘above the line’ tax credit.
If you are planning on doing Advanced Tax in March, I recommend you purchase Advanced Tax Condensed. You need to deal with at least 30 separate technical areas to pass the exam and this book will help you.
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