CONSUMABLES IN RESEARCH AND DEVELOPMENT
The Finance Bill 2015 received Royal assent on 26 March 2015.
New clauses 1126A and 1126B were inserted into the Corporation Taxes Act 2009 to amend the provisions relating to R & D Tax Credit Relief.
Additional relief for R&D costs is an incentive for R&D activity and investment in innovation. R&D tax credits provide an enhanced deduction for expenditure on R&D, including the cost of materials and other items, such as water, fuel and power transformed or consumed in the R&D activity. R&D tax credits are very important to the motorsport industry and are widely misunderstood and often not claimed.
As laid out in guidelines issued by the Department for Business, Innovation and Skills
(‘BIS’), production costs are not expenditure on R&D. In practice, where R&D activity takes place in conjunction with commercial production the attribution of the cost of consumable items, as previously defined, can be uncertain. This has led to claims for relief for costs in respect of materials and other items used in the production of goods effectively indistinguishable from normal commercial products.
The new clauses 1126A and 1126B restrict the expenditure in respect of consumable items that qualifies for research and development (‘R&D’) tax credits. In the circumstances where a company sells or otherwise transfers ownership of the products of its R&D activity as part of its ordinarybusiness then the cost of materials that go to make up those products is excluded from expenditure qualifying for relief.
This restriction will apply to expenditure incurred on or after 1 April 2015 say Harris & Co motorsport accountants.