When people think of research and development they often picture large international corporations, or specialist pharmaceutical, IT, or engineering companies. However, emerging developments, new demands, and increased competition have impacted all sectors, forcing innovation in every corner of UK industry. Here Scaffolding Association partners MPA discuss R&D Tax Credits.
Staying ahead of the competition and meeting consumer demands aside, undertaking research and development can have more direct financial benefits, too.
There is a vastly underutilised government incentive that rewards businesses working on advancement called Research and Development Tax Relief, or, R&D Tax Credits.
R&D Tax Credits allow a proportion of research and development expenditure to be claimed back from HMRC, which can reduce a tax bill or even increase taxable losses. SMEs could claim up to 33% of qualifying costs back, while larger companies or even those subcontracted to undertake R&D by someone else can take advantage too.
Awareness of R&D Tax Credits is growing, but uptake across SMEs and especially those within the construction sector is still small.
For the 2017-2018 period, only 5% of claims submitted came from construction businesses. While that was a 17% increase from the previous year, there is an opportunity for even more businesses to explore this funding.
SO WHY DON’T THEY?
The number one reason that more don’t take advantage of this free tax relief is confusion about the qualification criteria and what to include in claims, but it doesn’t have to be that way.
HMRC’s definition of research and development is intentionally broad, aiming to apply to all industries and business sizes. They state: “R&D takes place when a project seeks to achieve an advance in overall knowledge or capability in a field of science or technology”.
Thankfully, ‘advancement’ doesn’t need to be revolutionary! Alterations to products and processes developed through an iterative process are much more common, particularly in sectors that regularly respond to new and unique customer challenges.
Typical qualifying activity within construction ranges from work needed to adhere to on-site regulations, to applying off-site manufacturing technology, to developing energy generation or saving techniques, and increasingly around the deployment of digital technologies such as Building Information Modelling (BIM).
With the average claim value being around £63,000 it really is worth exploring further.
Claim value is worked out based on what you’ve spent on R&D, but costs that can be claimed include staffing, software, consumables, subcontractors, and trials and prototypes.
Paid as either a Corporation Tax saving, cash rebate, cash credit, or loss-relief for loss-making businesses, the relief is then yours to do with what you please. You could invest in new staff, skills, or contractors, purchase new equipment, or – ideally– invest in more R&D.
The governments’ Industrial Strategy sets out ambitious aims to raise investment in R&D to 2.4% of UK GDP by 2027; recent Budget announcements included significant investment in projects relating to the Strategies’ Grand Challenges, and the incentive itself is designed to support innovation culture – in that the more you invest the more you can claim, and hopefully re-invest, and so on.
HOW TO CLAIM
If you have all the information to hand and understand your projects and costings well, it’s relatively straightforward to apply for R&D Tax Credits online. If your projects are particularly complicated or numerous, or if you have questions about eligibility and costs, there are also specialist advisors like MPA who will work with you to make the process quick and easy.
Whichever way you decide, we encourage all forward-thinking businesses to ask what part R&D plays in their post-pandemic recovery strategy and subsequent plans for growth.
Find out more about R&D tax relief, qualification, and how to claim at www.mpa.co.uk
This article was originally published in AccessPoint Magazine, if you would like to receive future editions of the magazine for free you can join the mailing list here:
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