Your annual accounts are ready to be prepared but could you find ways to reduce your tax bill or get a cash payment to support your new product development?
Well it might be that you can if you are undertaking development activities that qualify as Research and Development (R&D). It’s not just for rocket scientists or research laboratories. In fact far from it, all sorts of development activities qualify – a few are described below and we’ve also added a more comprehensive list at the end.
The great thing about UK R&D tax incentives is that they apply to any UK registered limited company in any sector – The Dyson Report on Innovation 2010 made this point saying:
“Of the various tax instruments available to government, R&D Tax Credits have the advantage that they seek to help companies that are themselves prepared to invest in R&D.
Government does not need to choose sectors or companies, with the result that R&D can be encouraged in the widest possible range of sectors, taking advantage of businesses’ own insights into likely breakthroughs”
While it’s sometimes easier to spot R&D being done by pioneering technology companies, there are many other areas where companies are able to benefit and the pay-outs can be significant.
A mini revolution in the food industry
There’s a mini revolution going on in the food industry with new producers coming into the marketplace supplying for example frozen vegan ready meals, vegan ‘cheese’, and a whole array of vegetable, nut and seed based products. Plus established producers are updating their recipes to reduce salt, sugar and additives to meet changing consumer demands. Similar things are happening in the drinks industry. They will all be undertaking qualifying R&D to develop their new or improve recipes and in some cases their manufacturing processes as well.
While my focus here is not technology it’s worth mentioning that food and drinks businesses are also increasingly being driven to embrace technology, to automate manufacturing and production methods and there will be significant qualifying R&D being undertaken as part of that.
Materials and packaging for a better environment
There’s also a lot of qualifying R&D being undertaken to develop new more environmentally friendly packaging materials, to replace or reduce our reliance on plastic and polystyrene.
I buy all-natural cosmetic products made with organic ingredients. I was intrigued to see that my last order was packed using biodegradable, extruded nodules made of a starch product. There was a note on the top saying the packaging is water soluble and wouldn’t harm you if you ate it, so it can be disposed of as food waste. It looked so like the polystyrene or plastic packing nodules we are used to seeing in mail orders items, that I hardly believed their claims. So I put a piece in water and sure enough it dissolved. Development of this starch based packing product would certainly have qualified as R&D for a tax credit cash payment or tax relief.
It’s not only the creation of new materials that qualifies as R&D. Things like the design of packaging and how it is assembled can also be qualifying R&D. For example the development of a new packaging system to improve shelf life for a food product, or to hold a product securely to prevent damage during transportation, would be qualifying R&D so long as the development was not a routine or obvious solution i.e. there was some experimentation involved to work out if it was feasible or how to achieve the desired outcome in practice.
Construction and engineering challenges
There is a significant level of R&D in the construction and engineering industries, much of which is still not recognised as R&D by those undertaking it. For example a company may be seeking to build something in a novel way or in a difficult physical environment – such as a waterlogged area or on an unstable foundation, so they develop a novel solution that was not obvious and therefore would be considered R&D for tax relief. Another example is the engineering of elements of a building to enable a modular construction method, such as metal fabricated stairways or balconies. In this case there could be R&D in arriving at a design that meets the architects brief while also complying with regulatory requirements and being easy to fit.
I’ve just touched on a few areas, below is a longer list. For companies with under 500 employees the benefits are generous paying out between 19% and 33% of relevant expenditure, on things such as staff salaries or sub-contractors costs, materials and energy consumed.
Please feel free to email us to check if you qualify. Or speak to our specialist R&D Tax Credits advisor Linda Eziquiel on 0771 9439 229.