R&D Tax Credits is an incentive that was introduced by HMRC in early 2000 to drive innovation in the UK. R&D Takes place when a project seeks to advance in overall knowledge or capability of a process, material, device, product in science or technology through the resolution of scientific or technological uncertainty
How R&D drives innovation in the manufacturing industry
Utilising 3D printing/Additive Manufacturing technologies to create custom made, small batch or functionally-graded components, it will come as no surprise that you may often be working within the scope of R&D, driving innovation in the UK’s manufacturing industry.
HMRC recognises that the incentive drives our economy and encourages us to be at the forefront of innovation, creates intellectual property and subsequently drives your business forward by either reducing your corporation tax bill or receiving a cash injection. Statistics from the tax year 2021 to 2022 show that Manufacturing claims make up 23% of all R&D Tax Credit claims, a trend that has remained similar to previous years.
The R&D claims process
The relief rates have changed over the years, with a lot of the change happening in the last 12 months, and there is more to come. Most recently we saw changes with the introduction of Additional Information Forms (AIF) and Advanced Notification. On April 1st, 2024, the SME and RDEC scheme will merge, as part of HMRC’s initiative to make the incentive streamlined. This does mean however, companies looking to submit claims this year may have different rates for different accounting periods, especially if you are loss making as a business.
R&D Claim Eligibility
First and foremost, you need to be a limited company subject to UK corporation tax. Your projects need to extend beyond existing technologies, be using these technologies in a new way or be duplicating an effect that is not readily available. These projects need to have an uncertain outcome where success is not guaranteed.
You then need to identify your qualifying costs which are apportioned costs which can be included in the claim. The main inclusions are staffing costs (Full PAYE – inclusive of NI contributions, pension contributions and any bonuses paid), relevant software, subcontractors, consumables (material used up in the R&D process) and some utilities.
Next is your claims preparation. Recent legislative updates have brought new requirements to R&D tax relief claims, and HMRC have published a Guidance for Compliance article to provide further clarity on eligibility.
Finally claims are always made retrospectively, and you can look back two accounting periods. It also gives an opportunity to adjust a past claim if a new adviser should uncover more qualifying activity that had been previously missed. Your benefit can be received as either a deduction in your corporation tax, tax rebate or carry your losses forwards depending on your corporate tax position.
Simplify your R&D tax claim with expert help.
Kene Partners is an award-winning R&D tax consultancy founded in 2017 and since then we’ve claimed over £100 million for our clients. We have a UK team of 50, made up of engineers, Chartered Tax Advisors and STEM PhD holders.
For more information you can reach out to Gabriele Griggs at [email protected]