R&D Tax Credits for Manufacturing
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.
HMRC’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.
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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 £86m
- 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 130% of eligible expenses from your yearly profit before it is taxed, at the current rate of 19%.
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 the allowable loss can be surrendered for a tax credit at the rate of 14.5%, or, the loss can be carried forward and offset against future profits your company may make.
It is important to note that here the tax credit might not always be the best course of action. Whilst you will benefit from a cash flow improvement, the relief offered is at a lower rate. This is why it pays to seek professional advice so you make the most profitable decision for your business.
Contact us today. Speak to our online R&D experts to learn more and request a proposal.
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Claiming R&D tax credits in the manufacturing industry
R&D tax credits are commonplace in the manufacturing industry, but complexity of the legislation often makes it difficult to compile the lengthy information required by the HMRC for an application to be successful.
Further confusion comes as manufacturing covers a wide spectrum of business activities often moving into different areas such as food and drink, textiles or engineering.
If you are researching and developing new manufacturing products or processes but have never made an R&D claim before, need advice or are looking to maximise your existing claims, then please contact us today.
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.
Recent changes to the SME cap on R&D credit
Up until 2020, there was no limit to the amount of R&D tax credit that SMEs could claim. Due to abuse of the system, the government made the announcement in the 2018 budget that the legislation would change from 1 April 2020. It stated that R&D tax credit would be limited to three times the company’s total PAYE and NIC liability for that year.
Fast forward to the Spring Budget of 2021, SMEs applying for R&D tax credits will be eligible to a maximum of £20,000 in repayments per year plus three times the company’s total PAYE and NIC liability. So, it’s slightly better news for SMEs when it comes to claiming R&D.
The recent changes could prove problematic for genuine claimants that don’t pay themselves a salary as a company director, or employ minimal staff. If this applies to you, then we strongly advise seeking our professional advice to avoid cash flow issues and ensure your claim is approved.
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:
At Approved Accounting, we know the R&D scheme inside-out and will provide professional guidance to ensure the best chance of success. We will also save you valuable time and effort, so you can get back to doing what you do best.
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.
Contact us today and receive the R&D tax relief you deserve
Approved Accounting has extensive knowledge of R&D tax credits within the manufacturing industry, and has been successful in making claims for many SMEs. By undertaking research and development you are contributing a great deal to the economy and to individuals, so we are passionate about getting you the tax relief you deserve.
Why not get in touch with us to find out if your manufacturing projects are eligible for R&D tax credits. We look forward to hearing from you.
R&D Tax Credits - Frequently Asked Questions
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.
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.
Absolutely. The government R&D scheme is comprised of two schemes, one for SMEs and one for larger businesses. SMEs must have fewer than 500 staff and turnover no more than £86m in order to qualify.
This is not a straightforward question! The difficulty here is not in the calculation of the credit but in identifying the allowable costs and to what extent these costs can be included. Once this figure is arrived at this is multiplied by a rate of 130% to give you the additional enhanced relief. It is here where some expert tax planning is required as the there are a couple of options available, you can either carry losses forward to offset against future profits, offset against current tax liabilities or use these losses for a payable tax credit at a rate of 14.5%.
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.
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.