R&D Tax Credits – is your company sitting on a hidden fortune?
Research & Development Tax expert Phil Andrews, from MSC R&D, explains that with an average first claim worth around £50,000, manufacturers really should take a look at the R&D Tax Credit Scheme
The R&D Tax Credit Scheme is a bit of a mouthful, I agree! But for those of you who’ve never heard of it, turns out it’s a great way of getting hard-earned cash back into your business. And it does this by returning some of the money you’ve already spent on eligible R&D work.
‘Ah … but we don’t do research & development’ I hear you say. Well, let’s come back to this in a minute.
How does it work?
The scheme’s run by HMRC, the UK tax authority, on behalf of the government. The government’s keen to promote the scheme because it just so happens that for every £1 returned to an eligible company, that company usually then invests another £2.40 or so of its own money in more R&D work! And, when you consider that for even a relatively small company, an average first claim’s typically around £50,000, it’s easy to see why the scheme ultimately benefits everybody!
Why HMRC though? Well, simply because money is returned through the corporation tax system – either in the form of a tax credit (cash payment) or as tax relief (a reduction in tax owed) or a combination of both.
Are you eligible?
As mentioned, the scheme’s administered by HMRC and, given their responsibility to safeguard taxpayers’ money, there’s understandably a lot of rules about what is and isn’t eligible R&D work. It’s worth noting though that if these rules were too onerous, few companies would make a claim so what would be the point of the scheme?
Therefore, in simplified terms, to understand if your company is eligible ask yourself the following question:
- During the last couple of financial years has your company spent cash and/or resources trying to develop something new or trying to significantly improve something that already exists?
This ‘something’ could be a product, a process, a material or even a service. Plus, it doesn’t have to be particularly high-tech. It could have been something as straightforward as a new hand-tool developed to help improve part of a manufacturing process. Or, it could have involved the development of a specialised software solution needed to help improve your processes or services. And, it doesn’t even need to have been developed by you. It’s entirely acceptable that a specialised third-party did the work for you so long as they were paid regardless the outcome of their work. Whatever the case, it’s important that this development work involved some form of technology or science.
Next, ask yourself:
- In doing this work, did the people involved learn something technically new to them?
- And, was the outcome of this work something which, in your opinion, extended (or ‘advanced’) the existing level of technical knowledge or capability within your industry?
If yes, the next issue relates to financial eligibility. And this boils down to a simple but important rule:
- In doing the type of development work described, did your company take the financial risk?
This means did you spend money on eligible R&D work without any guarantee you’d get that money back (either through new sales or from a customer who paid you for this work)?
Real-world manufacturing examples
To help illustrate the kind of work that’s eligible, a couple of real-world examples follow:
- A client who designs and manufactures specialised industrial friction pads was asked by a theme park to develop an improved braking solution for one of its more dynamic rides. The client began an intensive seven-month development process which significantly reduced the deflection that all brake pads experience when a heavy braking force is applied. This was important not just because it improved the safety of theme park rides but also, because this new solution can potentially improve the operating safety of similar high-performance industrial equipment.
- To increase its product range, a client in the advanced composites’ sector began a year-long project to develop new high-temperature moulds. A mould supports the composite laminate during the curing process, hence provides its ultimate shape. However, due to the material from which a mould itself is made, it would fail at very high temperatures. As a result, this restricted the type of composite products that could be manufactured using certain high-temperature production methods. Therefore, the successful development of a new type of high-temperature mould was considered an important improvement as this now allows the production of many new composite products.
Ask the experts
So, the good news is that if you answered yes to the above questions, it’s very likely that your company is eligible for an R&D tax credit claim. The next step is to identify the eligible R&D work you do, properly document this and accurately cost it.
And for this, we recommend you use an R&D tax specialist. After all, understanding and applying HMRC’s more than 180 pages of rules is complicated and takes considerable technical and financial expertise. Also, following some large and regrettably fraudulent claims, more than ever, HMRC carefully scrutinises every claim it receives to ensure compliance. Therefore, our advice would be to always engage a reputable and experienced R&D specialist to help maximise both the value of your claim and its likelihood of success.
Founded more than 20 years ago, MSC R&D specialises in delivering profitable innovation. This means we help clients plan for, fund and implement successful R&D initiatives. Our services include R&D strategy, R&D tax reliefs (including R&D Tax Credits), R&D grant funding plus support in commercialising your R&D.
In terms of R&D Tax Credits, to date we’ve submitted more than 1100 claims and have a 100 per cent success rate. This success is due to the experience of our consultants, the close matching of our technical and financial skills to a client’s business plus, a rigorous internal review process which ensures the compliance of all claims. Moreover, we offer a no obligation assessment of your potential eligibility and work on a ‘no-win, no-fee’ basis.
If you’d like to discuss eligibility or the benefits of switching from your current R&D service provider, please contact Phil Andrews on: firstname.lastname@example.org
MSC R&D is one of the UK’s largest specialist R&D consulting firms. To find out more please visit: www.mscrnd.com
Manufacturing Today Europe has negotiated a competitive introductory fee for any of its readers engaging MSC R&D’s support for the first time.