Manufacturing firms could claim tens of thousands back in tax relief

Posted on 12 Jan 2022 by The Manufacturer

The HMRC Research and Development Tax Scheme was created to encourage business innovation and stimulate the economy, through supporting firms to bring new products and services to market.

Yet, due to time constraints, lack of awareness and doubts around eligibility or the legitimacy of the incentive, there are thousands of companies that are not currently taking part in the scheme, particularly within the manufacturing industry.

Research and Development Specialists (RDS) an expert in helping companies navigate the Government scheme, has already helped to recover approximately £2.1m solely for its 75 strong portfolio of clients in the manufacturing industry – which includes major players such as Ultron Technologies and Warmroof.

Here, Mark Joyner of Research & Development Specialists, based in the North of England, attempts to demystify R&D in a bid to reach more manufacturing companies that could benefit from a cash influx of tens of thousands of pounds.

What is R&D?

Research and Development (R&D) tax credits are a valuable government incentive that rewards UK businesses for investing in innovation. It is a powerful source of funding for businesses looking to grow and develop new products, services, procedures, and internal systems.

There is a misconception that to qualify for R&D tax relief then a business must employ people in lab coats and be undertaking scientific research, but that is not the case. Any type of research and development could qualify.

Some examples within the manufacturing industry could include:

  • Optimising a product’s assembly line by adopting / developing new technology.
  • Developing new innovative quality assurance equipment.
  • Creating a unique assembly line process.
  • Developing efficient tooling equipment.
  • Developing bespoke equipment or adapting equipment in a manner that promotes sustainability and/or efficiency.
  • Integrating bespoke software into machinery in efforts to guarantee operations efficiency/ enhance productivity.

What businesses can claim?

Any UK limited business can claim. There are no restrictions on the type or size of business although there are different types of R&D scheme depending on whether you fit HMRC’s guide as being an SME or large company.

For the SME scheme, a company must employ less than 500 people and have a turnover of less than £85m or a balance sheet total of less than £73m. An SME’s eligible R&D costs receive an additional 130% deduction when calculating the taxable profit.

Eligibility is focussed on the research project rather than the type of business. Typically, an R&D claim can be submitted for a business’s current and previous financial year.

Some R&D project criteria to be aware of…

The project must relate to your company’s trade, and you must be able to explain how the project:

  • Looked for an advance in science and technology.
  • Had to overcome uncertainty.
  • Tried to overcome this uncertainty.
  • Could not be easily worked out by a professional in the field.

Does the project have to be successful? 

No, there is no rule that says you need to have a finished product or service brought the market. The research/development phase is enough for you to qualify.

How do I claim the money?

For profitable businesses, the benefit is applied as a reduction in corporation tax. If a claim is historical, the monies will be claimed back as a repayment of overpaid corporation tax.

For companies operating at a loss, the R&D claim will increase the loss arising. This loss can then be set against prior and future profits of the company, or it can be turned in to a cash repayment by using a process HMRC calls ‘surrender’, whereby the business takes a slightly lower benefit percentage for the ‘cash now’.

It sounds too good to be true…

R&D Tax Credits are not PPI for businesses. It is a legitimate Government-backed incentive to encourage innovation and has been operating in the UK since 2000.

That said, there are intricacies, including when claiming for other tax relief incentives, as well as criteria to be met, that can make the process seem overwhelming. That is why employing a R&D specialist such as RDS can help take the headache out of making a claim.

More information on R&D tax relief can be found on the Government’s website here.

Mark Joyner, added: “Manufacturing is an industry that is constantly evolving and innovating, and that is exactly what this scheme has been created for. We consistently see high value wins for our clients in this sector, more so than other industries, because research and development are such an integral strand of the manufacturing process.

“If I were to say to you, I’ll give you £53,000 for your business tomorrow, I’m sure there would be lots of things that, as a business owner, you could do with that money. That figure represents the average amount of a successful claim through the HMRC R&D Tax Incentive. It is not a scam or a way to play the system, yet for many reasons, companies that are eligible are not claiming the money to which they are entitled.

“A lot of people think it sounds too good to be true, some are time poor and don’t have the time to investigate the scheme properly and some are just unaware that it even exists. At RDS we simplify the process and take a lot of the leg work away from busy accountants, senior teams or business owners.

“Something that sets us apart is that we’re completely transparent and we give our clients full sign off for a claim at various stages of the process. We hand over the final submission to the in-house team so that they know the full figure they’re claiming for, and our costs are recovered only when a successful claim is submitted, approved, and credited. For us, building trust and working in partnership is the most important part of the process.”

For more information, click here.