R&D Tax Credits for Manufacturing Companies
Despite recent events, the British manufacturing sector is on an upward trend. This is due to the ongoing opportunities that digitalisation has presented and a renewed patriotic obligation to purchase goods with a ‘made in Britain’ stamp of approval.
But with a number of banks still feeling uneasy about funding new SME investments, it is important that manufacturers seek other forms of finance.
The government’s R&D tax relief scheme is a key method for manufacturing businesses to receive an important monetary benefit, which can be reinvested into further innovation and helps to provide an important competitive edge.
Statistics show that manufacturing firms across the UK are becoming more aware of the impact R&D tax credits can have on their business, yet thousands of SMEs are still missing out on this vital cash boost.
If your manufacturing business is evolving but you are unsure of how to claim R&D tax credits due to lack of awareness, eligibility or through insufficient knowledge of how to apply, then contact Approved Accounting today!
Contact us for help with your claim.
What type of manufacturing and engineering projects can qualify for R&D tax credits?
We guarantee you will be amazed by how many activities meet the requirements for manufacturing R&D tax credits. If you’ve recently introduced new or improved products or manufacturing processes then there is a strong chance that you could benefit from R&D tax relief.
To qualify, your manufacturing project must meet HMRC’s four-point checklist below in order to be eligible:
1. Your R&D project identified a technological advance in manufacturing processes and development
- You should, of course, be 100% certain that the solution isn’t already out there.
- The advancement should be for the benefit of your sector as a whole.
- The advancement may be in relation to a new product/process/service, or an improvement to an existing product/process/service.
- The advancement must be technological in nature and not merely cosmetic.
2. Your manufacturing development project had to overcome technological uncertainty
- In order to come up with a solution, there must have been technological uncertainty to start with. To put it another way, the technological knowledge required to fulfil your aim simply didn’t exist before. You will be required to prove that the uncertainty existed.
3. You attempted to overcome the uncertainty as part of your project
- You will be required to detail your methodology, including experimentation and testing.
- You must show that the intelligence to overcome the uncertainty could only have come from within the course of your research, and not from existing knowledge or capability.
4. The solution could not be reached by another competent expert
- You will need to explain why the solution could only be solved by your team of experts within the course of your project. If your advancement could have been easily worked out by another professional in your field, it will not qualify.
Is your manufacturing business able to claim for R&D tax credits?
R&D tax relief is comprised of two schemes, one aimed at SMEs (Small to Medium-Sized Enterprises) and one aimed at larger companies. Here at Approved Accounting, we specialise in R&D claims for SMEs, although we are well-versed in both schemes.
To qualify, your SME must:
- have fewer than 500 staff
- have a turnover of under 100m EUROS
- should not be receiving state aid towards the project for which you are claiming
SME tax relief for manufacturing development can be broken down into two components:
1. Enhanced expenses relief
Under the R&D scheme, you can claim an extra 86% of eligible expenses from your yearly profit before Corporation Tax.
Allowable R&D expenditure includes:
- Employee salaries and NI contributions – this includes support staff as well as technical staff, as long as the work they undertake is directly for the project.
- External agency, freelancers and subcontractor costs – you can claim 65% of the cost of hiring external staff to work on your software project.
- Materials – this includes physical materials, consumables, utilities and software licences, as long as the project takes up a reasonable share of its usage.
2. Tax credit
If your company is making a loss then it can claim an R&D tax credit at the rate of 10%. This increases to 14.5% for R&D intensive SMEs, i.e. those whose qualifying R&D expenditure is 30% or more of their total expenditure.
It is important to note that here the tax credit might not always be the best course of action. It always pays to seek professional advice so you make the most profitable decision for your business.
What types of research and development projects are claimable within manufacturing?
A misconception within the manufacturing sector is that in order to qualify for R&D tax relief, businesses must come up with some breakthrough product or process. More often than not, however, everyday projects that are considered routine rather than innovative by a company, can still be considered and awarded funding.
Examples of this include product development and improving second generation products, increasing the usability of a product or looking at alternative materials that will not only enhance product performance but ones that are more environmentally friendly too.
When it comes to the manufacturing process, simply by scaling up your production or integrating new technology with old systems can warrant an R&D tax credit claim.
How do I make an R&D tax credit claim?
If you would like to make a manufacturing R&D claim for recent activities, then this must be submitted to HMRC with your annual company tax return along with any supporting documentation. Claims can be made up to two years after the completion of a qualifying project.
Make a successful R&D tax credit claim with Approved Accounting
Approved Accounting can help you to navigate the manufacturing R&D scheme and make a successful tax relief claim. Should you choose to work with us, this is our tried and trusted process:
- We will take a look at your company’s innovation and development projects and identify those that can be qualified as R&D.
- We will consult with you and your experts, to understand the technical aspects and activities of the project(s).
- We will help you to compile the fundamentals of the report to submit to HMRC.
- We will review and analyse the expenditure for the qualifying project(s), then calculate your claim.
With your approval, we will submit the claim as part of your corporation tax return. There is no need for you to process anything, we will do it all on your behalf.
What does it cost?
We will only take a commission if your manufacturing R&D claim is successful, based on the tax benefit you receive. Our standard rate is 15%, however, depending on the size of the claim we will be pleased to negotiate that with you.
R&D Tax Credits – Frequently Asked Questions
What does R&D stand for?
R&D stands for Research and Development, and can be defined as any work that is undertaken by a company to advance science or technology. In the UK, HMRC rewards and incentivises R&D in various sectors through the R&D tax relief scheme.
What qualifies for R&D tax credit?
R&D tax credits are available to any company, large or small, that undertakes scientific or technological projects that advances its field as a whole. It could be in relation to a new product, service or process, or an existing product, service or process. This includes, but is not limited to, sectors such as bioscience, software development, manufacturing, food and engineering.
Do small businesses qualify for R&D tax relief?
Absolutely. Qualifying SMEs must have fewer than 500 staff and a turnover of no more than 100m EUROS or a balance sheet of no more than 86m EUROS.
How do you calculate the R&D tax credit?
First, you must establish your qualifying R&D expenditure. This is then multiplied by a rate of 86% to give you the enhanced relief amount. Profit-making businesses can use this to offset their Corporation Tax bill. Loss-making businesses can receive an R&D tax credit at a rate of 10% of their enhanced R&D expenditure. This increases to 14.5% for R&D-intensive SMEs, i.e. those whose qualifying R&D expenditure is 30% or more of their total expenditure.
How can I apply for R&D tax relief?
You apply for R&D tax relief as part of your annual corporation tax return. It can be made up to two years following the completion of a qualifying project.
What expenditure qualifies for R&D tax relief?
Qualifying R&D expenses include employee wages and NI contributions, subcontractor costs, materials, utilities (such as gas and electric), and software (providing that the R&D project claims reasonable usage). The nature of the expenditure can have an impact on the amount you can claim and in some situations the cost is restricted. You cannot claim for the expense of production, distribution, patents or trademarks.
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