R&D tax credits explained ( Maybe)

R&D tax credits can help bring a company so extra income, you have to be smart on documentation of projects and improvements but it very interesting to see where you can recoup soem of your costs, but my advice is seek council from a recognized advisor some one who knows your industry and has a track record, ask around , or talk to your auditors. I found this article which will explain the basics. Enjoy



R&D tax credits explained


The government tax break that gives you money back for investing in innovation,
The chancellor announced sweeping changes to the research and development (R&D) tax credits system in his 2011 budget, offering greater encouragement for entrepreneurs to invest in original research and product design. But what exactly do the changes entail, and what do they mean for small businesses?

Essentially, the changes announced the budget have significantly increased the tax breaks available to companies which invest in research and development.

Under the new rules, a company which runs a dedicated R&D scheme can claim up to 200% relief on corporation tax for any money they spend on the project; essentially, this means the company will pay no tax on the cost of its programme, and receive an additional 100% corporation tax discount. The amount of relief will rise to 225% in 2012.

Furthermore, for those companies which make a loss on their R&D programme, the government is now offering payable credit for up to 24% of the project's total cost - a major boost for the tech start-ups which are being strongly encouraged by the current administration.

Definition

But before everyone starts rushing out an investing in a ground-breaking research project, it's important to know what an R&D project actually is. There's no point splurging thousands of pounds on R&D if it doesn't meet the government's criteria for relief.

At its most simple, R&D refers to research which directly contributes to the creation of new and innovative products, processes and services, or simply the enhancement of knowledge and understanding. The project must have wider relevance, and benefit, beyond the profit margins of the company carrying out the work. If you're thinking of carrying out an R&D project purely for your own ends, you won't get tax credits for it.

On the other hand, if you want R&D tax credits, you must prove the research is linked to what your company does. If you make industrial cleaning products for a living, and then suddenly decide to build a new type of spaceship, the government won't look favourably on your R&D application.

Finally, it's important to know what sort of industries and sectors qualify for R&D relief. The credits are primarily designed for companies in the science and technology sectors, such as manufacturing, engineering and hi-tech; if your company operates in the humanities or social sciences sectors, you probably won't get much joy in applying for relief.

It's also worth noting that your research must be original - i.e. it should not duplicate research which has already been done - and your findings must be borne of a systematic process - if you've just got lucky with a random piece of investigation, or happened upon an amazing discovery while going about your usual business, you'll be wasting your time if you go in search of credits.

How can you apply to get an R&D tax break?

If you feel that the work you are undertaking, or plan to undertake, qualifies for R&D tax credits, it’s imperative that you apply for consideration. As the old saying goes, there is no harm in asking. If you fail to apply for R&D tax breaks, you could miss out on valuable savings, putting your entire project at risk and damaging the viability of your business.

All claims relating to R&D tax credits must be included in your company tax return, or amended return. As a small business, you should put a tick in box 99 of the form to pinpoint the size of your company, then insert a figure for the enhanced expenditure in box 101 – this is the amount you spent on the R&D project, multiplied by 2.

The normal time limit for making your claim is two years after the end of the relevant Corporation Tax accounting period. This figure should also be included in your calculations of the profit (Box 3) or the loss (Box 122).

And the boxes don’t stop there – you’ve also got to put the amount payable in boxes 87, 89 and 143 – and put an X in the ‘repayment due for this return period’ box, found on page 1.

Ref www.startups.co.uk

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Entropy and change management

From Toilet Paper to Typhoons: Why managers need to let go

During one of the episodes of the Wonders of The Universe series on BBC One, Professor Brian Cox introduced us to the concept of entropy. Entropy is a term used by physicists to explain the way in which things move inexorably from an organised to less organised state. As Professor Cox explained, this is the natural law of the universe. For example, when we build a car we take raw materials such as metal, leather, plastic and glass and arrange them in a highly organised way to make a car. But if we then leave that car for long enough the metal will rust, the glass will become brittle and break and the leather will dry out and turn to dust. If the car is left for a very long time it will eventually disappear altogether. This thought left me wondering about the nature of organisations. If a progression from order to chaos is the natural order of the universe, then is this same pressure present in organisations and, perhaps more importantly, what is the optimum position for an organisation between the extremes of rigid inflexibility (low entropy) and complete chaos (high entropy)? This question is not as crazy as it might at first appear. Take as an example of an organisation with a low entropy value the last company in Britain to produce hard toilet paper. For those of you lucky enough to not know what this is, hard toilet paper was shiny on one side and formed painfully sharp edges when scrunched up. It was however what people used to wipe their bottoms until the introduction of soft toilet tissues in the 1950s. However, the hard paper was cheaper and it was not until the 1990s that the last UK company making hard toilet paper went out of business. Clearly, that organisation was so set in its ways and so resistant to change that the introduction of soft tissue, quilted tissue or even moisturised and scented tissue completely passed it by. Perhaps the reason for this seemingly blinkered approach can be found in the history of organisations and in particular in the philosophy and practice of management. Developed in the late seventeenth and early nineteenth centuries, the purpose of management was to enable the business-founders who led the industrial revolution to coordinate the activities of the huge workforces they employed. Prior to that, most businesses were small cottage industries where a formal management process was not needed. Because the workers in those early organisations were the means of production, their activities needed to be coordinated and closely supervised. So, when Henry Ford said he wanted all his Model T cars to be black, he used his managers to ensure that his orders were carried out and that each and every car was indeed black. Provided that either nothing changes or that the pace of change is slow enough for the business founder or chief executive to anticipate and direct all the necessary changes, this low entropy organisational model works well. Indeed, the massive growth in prosperity of the Western economies during the last 150 years or so stands as testament to just how well it has served us. More recently though the pace of change has accelerated to unprecedented levels. The combined effects of mechanisation and globalisation mean that a new innovation launched on one side of the world today can be copied and become a commodity product within a matter of weeks. For example, did you know that the Disney Corporation releases, on average, a new product every 3 minutes, or that most consumer goods companies will today be selling products that did not exist 6 months ago and that will no longer exist in 6 months time? In this fast-moving world where the number of decisions an organisation needs to take every day vastly exceeds the capacity of a single person, the traditional role of management in enforcing blind obedience to directions from above has changed. Today's managers need to be leaders of change as well as supervisors of the process. And in this environment, too much stability is a bad thing! So to be more agile and more receptive to change, an organisation needs to be less stable and therefore more chaotic. To illustrate the benefits of this higher entropy model, take the case of the Typhoon Eurofighter. This aeroplane was deliberately designed to be the least stable aircraft in the world. It is in fact so unstable that if it were not for the numerous computer systems that monitor and control its every movement, it would be impossible to fly. Yet it is this instability that also makes it the most manoeuvrable aircraft in the world. In the Typhoon the pilot is therefore not really piloting the aircraft at all, that is done by computer. They are instead acting as a leader – setting direction and initiating changes. The challenge in building the Typhoon was therefore to find the right balance between chaos and organisation. Too much chaos and the aircraft would be un-flyable, too little and it would not be sufficient manoeuvrable. In organisational life this same dilemma is represented by the balance between management and leadership skills. The discipline of management is all about stability while the discipline of leadership is all about change. John Kotter, the legendary Professor of Leadership at Harvard University famously summed it up in his book "Leading Change" when he said that in times of stability a balance of 80% management 20% leadership is appropriate, but that in times of change these percentages should be reversed. Since no one would dispute that in organisational life the pace of change is greater today than at any time in the past, the question we should all be asking ourselves is whether we have got the balance between management and leadership right, or whether our organisational entropy score is too low?

About the Author Alistair Schofield is Managing Director of Extensor Limited.

www.extensor.co.uk