3 minute read • published in partnership with Haines Watts
How R&D tax relief can open up a lucrative cash stream in manufacturing
Research & Development (R&D) tax relief is an incentive available to UK limited companies which encourages investment in innovation. R&D tax credits can reduce a company’s tax liability or, if a company is not in profit, provide a payable cash refund. Haines Watts R&D North West explore what a successful, lucrative R&D tax relief claim can mean for your manufacturing business.
A number of manufacturing and engineering companies don’t realise their business activities qualify as ‘research and development’ and do not believe they are eligible to make a claim.
R&D is open of all manufacturing businesses from textiles, wood and paper products, publishing and printing, petroleum and nuclear fuel, chemical products, rubber, plastic and metal products and much more.
Basically, if your business can prove it is problem-solving and can demonstrate it is making ‘appreciable improvements’ or overcoming technological/scientific uncertainties, then you have a very strong chance of a successful claim.
Here are some common examples of product and process development projects that may qualify for R&D tax relief:
• Innovative product development using computer-aided design tools
• Development of second generation or improved products
• Prototyping and three-dimensional solid modelling
• Introduction of new materials to improve the manufacturing process and product performance
• Testing product prototypes
• Increase ease of operation or suitability of manufactured products
• Designing and developing cost-effective and innovative operational processes that meet increasing regulatory requirements
• Streamlining manufacturing processes through automation
• Developing unique computer numerical control programmes
• Designing innovative logic controllers
• Development of computer models
• Virtual, 3D and mixed reality modelling
Furthermore, certain indirect support activities may qualify for R&D tax relief, such as administration, finance, and personnel services specifically required to support R&D activities, as well as training to support R&D.
You can claim relief on costs that have been expensed through the Profit & Loss account and, in certain circumstances, you can also claim capitalised expenditure (providing that the assets purchased have been classified as Intangible Assets). If you have exceeded your Annual Investment Allowance (AIA) for capital expenditure in some cases you can also claim an R&D capital allowance (RDA, which is not capped, unlike AIA currently capped at £1,000,000). This may be of particular importance if you have moved to new premises or have built an R&D facility.
The main areas of costs that can be claimed include staff costs (gross pay, employer’s NI, employer’s pension contributions, and reimbursed expenses relating to R&D activities), agency workers, subcontractors/freelancers, software costs and consumable items (heat, light and power, and materials and equipment used or transformed by the R&D process).
A lucrative cash stream
There’s no doubt that R&D tax relief opens up a lucrative cash stream for manufacturing businesses to enable them to flourish and grow. But navigating the complex claims process can be extremely off-putting.
That’s why it pays to use a professional in order to maximise your claim.
Haines Watts R&D North West work UK wide with manufacturing companies of all shapes and sizes to guide them through their R&D tax credits claim.
Maybe you’re facing all kinds of challenges at every stage of the manufacturing process, from design through to final prototypes? Or you’re experimenting with new or updated materials or adapting existing processes to take account of changes in legislation, or health and safety concerns that prevent certain chemicals or techniques from being used?
Or perhaps you’re focused on advancing textiles technology, developing high-performance technical fabrics and improved formulations for finishing processes to produce new high-tech fibres, yarns and fabrics?
Speak to the experts at Haines Watts R&D North West specialist R&D team, they can advise you every step of the way.
First, its taxation experts will meet you and your team to understand your challenges and how you’ve overcome them and ensure they are totally familiar with your operations to capture everything possible in your claim.
They will undertake a fact-finding mission, gathering relevant financial records, analysing the figures to produce a precise figure indicating how much tax you’ll save and whether you’re due a refund from HMRC.
A bespoke report will be presented, detailing your eligible activity and why you qualify before it is submitted to HMRC.
The fun begins (their words) going forward when they can assist you to develop a robust and targeted R&D mission statement aligned to and promoting your business growth, wealth and job creation by using the tax relief to fund further innovation.