The latest Government statistics show that, to date, over £14 billion in R&D tax credits has been claimed across all sectors but only a tiny proportion of this has been claimed by the engineering and manufacturing sectors.
So, what are R&D tax credits? Put simply, they’re a Government initiative to encourage companies to invest in developing innovative processes and technologies. And, for qualifying expenditure, the benefit in claiming can equate to up to 33p for every £1 of costs incurred.
They can be claimed by any UK trading company and the claim is made annually together with the company tax return. If you have missed a claim it is possible to go back up to two years to make one.
There are some telltale clues that identify what counts as R&D in the eyes of the Government. For a start, are there specialists working on a project? If so, are they having to spend time trying to solve technical difficulties or uncertainties? Do the contracts contain extensive retention and indemnity clauses? Any one, or all, of the above point towards the potential for R&D qualifying activity and could be claimed for.
Some text book examples of R&D work in engineering or manufacturing include developing new processes to meet the latest Government legislation, work that involves prototyping, working on the interaction of two or more new technologies or materials, development of new equipment to fulfil a project or other commercial use, developing materials that are cheaper or greener, developing new packaging bespoke to a particular product or purpose such as maintaining a specific temperature or a lower weight to what is currently available. Finally, is there a ready-made solution or alternative to what you are doing on the market? If not, this is an indicator of R&D qualifying activity.
Many costs are claimable including employee costs of those carrying out R&D activities, including salaries, employers NIC and pension contributions; directors costs if they are involved in the project; support staff if they are engaged wholly or partly in supporting the R&D; agency staff; materials used in carrying out the R&D, such as those for prototyping or testing; materials that are consumed or transformed as part of the R&D; costs of electricity, gas, water and other fuel directly relating to the R&D can be claimed; software to enable the R&D; and even some subcontractor costs.
If you think you are eligible to claim R&D tax credits or are already claiming them, speak to your accountant to ensure they are experienced in preparing R&D claims for your sector as, if they are not, you are likely to miss out on valuable parts of your claim.
Richard Marsh is tax partner and head of tax at RPG Crouch Chapman