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Are you a manufacturer missing out on R&D tax relief?

Do you fall into this category? Usually the reason is simply down to the fact they don't think they qualify. How would you know if you don’t check properly? Some manufacturers are missing out on thousands in R&D tax relief just because they don’t think it’s worth checking.

New statistics published by HMRC reveal that manufacturers are in fact first in line when it comes to claiming tax relief to offset their investment in research and development (R&D) but even so, only 25 per cent of claims for R&D tax relief were made by manufacturing businesses, emphasising the lack of understanding around what types of activity qualify for R&D tax relief and resulting in underclaiming for the credits they deserve.

Since it was introduced in 2000, the awareness of R&D tax credits and their role in rewarding investment in innovation has increased significantly. This will become increasingly important in supporting competitiveness post Brexit.

R&D tax relief is actually relevant to any business looking to improve processes, products or services, or advance technical knowledge. The relief allows businesses to offset some of their spend on R&D activities against their corporate tax liability, or claim a repayable tax credit if they are loss-making.

For every qualifying £100 spent on R&D, a company can get back between £13 and £33, with the average being £25. This means that if you have paid staff and bought materials for prototypes to the value of £100,000 you could be looking at reducing your tax bill or, in some cases, actually getting a cash payment of £25,000.

The government came up with this brilliant scheme back in 2000 but, according to some financial experts, fell short in getting the message properly across to its target audience.

Future increases in the volume of R&D tax relief claims are likely to come from smaller aspirational manufacturing businesses as well as businesses in other sectors, where there is still a lack of understanding about what activities qualify for the incentive.

The HMRC stats do show a significant projected fall in the number of R&D relief claims made in 2016-17, but this should not necessarily be a cause for concern as 2015-16 saw a significant increase in claims on the prior year and some claims may have been accelerated. The statistics are also impacted by the timing of claims as businesses are allowed a two-year window after the end of their accounting period in which to make a claim. It is therefore possible that some businesses have delayed doing so in order to focus on more pressing priorities.

It is interesting to note from the HMRC paper that the most claims are made by the smaller SME market, claiming for up to £50k, but the actually success rate of amount claimed is very low in comparison. This could be due to businesses not seeking professional advice or help when submitting a claim. Yes they will have to pay a company such as The Growth Enterprise a commission, but that percentage is small in comparison to the time it will take a business to fill in a claim and get it wrong.

An interesting statistic to note is that the largest number of claims came from companies between 5-10 years old (23%). It appears that the ‘younger’ companies are more aware of the scheme, but the older businesses aged over 20 years do not make claims.

Another interesting tax benefit to businesses is the UK’s Patent Box regime. This has only been in place since 2013, but is rapidly gaining popularity among entrepreneurial UK manufacturers. One of the most generous schemes of its type in Europe, it allows businesses profiting from their patented inventions to benefit from a reduced rate of corporation tax on these gains.

In order to optimise their tax position, it is essential that manufacturers involved in product development have a thorough understanding of the rules around filing a patent as well as the point at which any profits become eligible for Patent Box relief.

In our opinion all UK manufacturers should assess their eligibility for tax relief carefully as this could lead to additional finance for new projects. Whilst the scheme allows businesses to make reasonable estimates in their first few claims, identifying eligible projects and tracking expenditure and staff time carefully with supporting documentation can help increase the claim and manage any discussions with HMRC. At a time of tough trading conditions, having a detailed understanding of these valuable reliefs and when they apply could provide the boost needed to deliver business growth in uncertain times.

Claiming back R&D tax relief is not just about companies getting cash for innovation; it also helps to boost the economy.

If you are looking to make a claim, or are even uncertain and want some advice, please seek advice of a professional. One such firm, The Growth Enterprise, as successfully claimed back £5.2M for clients since 2015 and knows the paperwork inside out. They will only take on a claim if they feel strongly you will benefit from it and they don’t charge you for their work or for meetings, their money comes as a percentage of the claim you actually get so you can’t lose! If there is no claimable benefit then you wont pay a fee.

 


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