Fact or Fiction? Why R&D tax relief is a great opportunity for engineering companies to get something back
The UK Government’s R&D tax relief scheme seems to be one of the industry’s best kept secrets going by the number of engineering companies making the most of it. Those few who do though have reclaimed money from HMRC, which can be used to fund technical challenges and develop new prototypes or invested in new operational systems and processes. A big advantage in such a brutally competitive global market!
Whether it’s through a lack of awareness of the scheme itself, confusion around eligibility criteria or fears about the complexity of applying, too many UK engineering companies are missing out on this opportunity to get something back. We’ve therefore produced this handy guide to help separate fact from fiction and, hopefully, encourage more engineering companies to claim what’s rightfully theirs.
Facts on R&D tax relief
FACT #1 - The R&D tax relief scheme was developed to reward innovation
That’s it in a nutshell and no, there isn’t any catch. The R&D tax relief scheme was designed to stimulate innovative activity within the UK. So, as long as you’re doing R&D, you can claim the benefits.
FACT #2 - The greater your R&D spend, the greater the returns
The scheme works by ‘enhancing’ the money spent on R&D and using this enhanced figure to offset profits, reducing your corporation tax liability. Loss-making SMEs and, as of 1 April 2013, Large Companies too can choose to receive their benefit as a cash credit. What you get back depends on what you put in, with many companies looking at substantial returns.
FACT #3 - This is money that can be used to offset future R&D costs
A successful R&D tax relief claim provides tangible evidence that the time and effort invested in R&D is worthwhile. This, in turn, encourages the development of a corporate philosophy that embraces innovation and improvement, enabling new research projects to be funded. This benefits everyone, since the claiming companies stay ahead of the competition and increase their value, while the UK as a whole maintains its status as a world leader in innovation.
Fiction on R&D tax relief
FICTION #1 - R&D always requires a lab full of people in white coats
R&D has played a pivotal role in reinvigorating the engineering industry, with companies engaged in a constant effort to improve their products – whether that’s by making them lighter, faster, smaller or bigger. Your company may be eligible for R&D tax relief if you’ve carried out any projects involving prototyping or development and experimentation with materials and physical production processes.
FICTION #2 - Claiming is time-consuming and laborious
To the uninitiated, the complexity of the claim process can prove to be a hurdle too far. The best way to overcome this is to use a specialist – someone who prepares claims on a daily basis, keeps abreast of the latest interpretation of the legislation and has a strong and proactive relationship with HMRC. At Jumpstart, we do all the hard work so you don’t have to. Our typical claims process can be as simple as:
- 40 min screening
- 2 hour technical meeting
- 4 hour report review and cost collation.
We do the rest.
“So the fact that the R&D tax credit programme is not well understood is an issue. As long as business owners do not understand the system and how to claim what is due to them, it is lost investment for British businesses. This has a direct impact on our economic growth locally and nationally, and makes British businesses less competitive internationally. To get the maximum out of your R&D tax claim it is essential to have technical people who really understand what you do and are able to articulate it to HMRC. With Jumpstart there is no risk involved. They created value for our business with minimal fuss and effort.”
Angela Mathis, Chief Executive Officer, ThinkTank Maths Ltd
FICTION #3 - Claiming R&D tax relief is more about financial knowledge than technical knowledge
Yes, accountants may be the experts at maximising the tax benefits associated with identified R&D expenditure, but it’s R&D tax relief specialists who are the experts when it comes to understanding HMRC’s guidelines, using these to extract the technical details of your R&D and explaining it in a language that HMRC understands. Jumpstart’s approach delivers markedly better returns in three main areas:
- Claim size: Typically, a technology-based approach results in larger claim sizes. By investing our time in your technical staff, we’re able to identify projects you may have overlooked and so justify greater R&D expenditure for your company.
- Claim success: Jumpstart has a strong and proactive relationship with HMRC’s R&D Units around the country. Where questions arise, we deal with them promptly and courteously, helping to maintain our extremely high success rate.
- Claim defence: In the unlikely event that HMRC’s tax inspectors start asking more challenging questions about your claim, it’s comforting to know you have a team of PhDs and MScs at Jumpstart ready to argue the science of your case for you.
Given the nature of our business I was extremely disappointed by the award we received through our accountant. With Jumpstart we were able to claim for projects that ranged from basic chemistry, used in the resins for our buoyancy systems, through to the testing procedures carried out to calculate the subsea pressures our structures will withstand.
I don’t know an accountant who can visit our plants and identify such R&D detail. With the technical expertise of Jumpstart we saw a massive increase in the money returned for the R&D we had invested in and, now that we have seen what HMRC considers eligible expenditure, I hope our future claims with will be every bit as strong.” James S Milne CBE DL Hon DBA DHC, Chairman and Managing Director, Balmoral Group Holdings Ltd
Now that you know the truth about R&D tax relief, isn’t it about time you joined other engineering companies in securing your share of the estimated £16.3bn of unclaimed tax relief since the start of the scheme?
For a free consultation and analysis of the potential returns you might expect, contact Jumpstart, quoting Process Industry Forum.
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