For many UK manufacturers, R&D tax relief has become a tried-and-trusted way to fund investment in R&D. The incentive has offered firms a steady source of cash with which to hire more staff, develop new products and overcome shocks like COVID-19 and Brexit-induced supply chain disruptions.
But just as the UK manufacturing sector has undergone much change in recent times, so too has R&D tax relief. Many manufacturers are now familiar with the incentive, but not enough are up to date on recent policy developments which have changed the landscape.
The changing market of R&D tax relief
HMRC has grown increasingly concerned about errors (and fraud) occurring in R&D tax relief claims. As such, it has introduced a number of measures aimed at improving the quality of R&D claims (such as 100 new compliance staff to its R&D unit).
Concerns about error and fraud have been worsened by a marked increase in unregulated, spurious tax advisers offering businesses bad advice or poor-quality service. Many legitimate, unsuspecting businesses have found themselves facing difficult questions from HMRC alone as their adviser lacks the necessary skills to support them.
More generally, there’s been a tightening of HMRC’s approach to R&D tax relief rules and guidelines. For example, HMRC has challenged some SME R&D tax relief claims for customer-led projects, on the basis that customers are subsidising the underlying R&D.
“Despite all these changes to R&D tax relief, the opportunity to benefit is still there. UK manufacturing is highly advanced, and the sector is research and development intensive. These policy changes won’t cut eligible businesses out – that is, if they make the adjustments required. As manufacturers enter a critical period post-Brexit and post-pandemic, R&D tax relief remains a powerful source of funding.”
- Peter Beavis MSci PhD, manufacturing sector specialist at ForrestBrown.
How to proactively sense check your claim:
If you’re unsure about your current R&D tax relief position, there are a few quick, common-sense steps you can take.
Quality check your adviser: Your adviser should regulated member of a professional body, like the Chartered Institute of Taxation (CIOT). Not all advisers are, and this means they are unregulated.
Sector expertise: A robust R&D tax relief claim is built on a mix of expert tax advice and sector insight. If your adviser lacks this expertise, you should strongly consider finding one that does.
Understand your contract: Check the scope of work in the contract – is enquiry support included? Keep an eye out for restrictive tie-ins and termination clauses, and make sure you fully understand the proposed fee structure.
Know your R&D tax relief claim: What precisely are you claiming for? In recent times, HMRC’s expectations for evidence and records to support an R&D tax relief claim have increased. It’s up to manufacturers to clearly define their specific project boundaries. Essentially, do you know what you are claiming for and why?
Get enquiry ready: Most HMRC enquiries take several months to resolve and HMRC will need to speak to your ‘competent professionals’. They need to be fully prepared for what can be a detailed and time consuming, and even nerve-wracking, process.
Why now is a good time to claim for the first time
There is a lot of change happening in the realm of R&D tax relief policy. This is a positive thing. The incentive has grown and grown, and now is the right time for the government to recalibrate its approach.
For manufacturing firms, there’s a risk of being caught out at a time where they need R&D tax relief the most. This risk can, however, be managed effectively by working with the right adviser.
ForrestBrown works with government at the policy level and ensure our clients are prepared for any changes. R&D tax relief remains a powerful incentive for manufacturing firms – but the right advice makes a world of difference.
Webinar – R&D tax relief: A bold new era for UK manufacturing
Learn how to prepare for these changes by registering for R&D tax relief: A bold new era for UK manufacturing on 27 July 2021, 11:00 – 11:45, featuring myself, Jenny Tragner CA ATT, and ForrestBrown’s manufacturing specialist Peter Beavis MSci PhD.