For example, recently, an article appeared in The Manufacturer which stated that only 3% of manufacturing SME’s are claiming R&D tax credits. There are also many other sectors that typically qualify for these credits including Software/IT, Digital Media, Chemicals, Food and Beverage, Aerospace, Plastics, Textiles, Tool and Die, Machining and many more.
Starting April 1, 2012, small or medium (SME) sized companies can offset or recoup roughly between 25%-30% of corporation tax paid when filing for R&D tax relief. Those SMEs that are in a tax loss position can earn a payable credit from of up to 28% of eligible R&D expenditures. For example, starting April 1, 2012, a company in a tax loss position with £100,000 of eligible R&D spend can earn a cash refund of up to approximately £24,000.
So why are more companies not claiming for R&D tax relief?
The reasons, in our experience, include the following:
1. Procrastination: Companies may have inquired about claiming but do not necessarily take action in filing a claim.
2. Concerns about HMRC: Companies have concerns about HMRC raising a query and reviewing documentation.
3. Limited resources: Companies, whether profitable or in losses, that have heavy work loads are primarily concerned with hitting targets and do not have personnel to look into claiming R&D tax relief.
4. Believing that they are not eligible: Several manufacturing companies believe the day-to-day activities are not considered eligible for the programme.
In over 90% of cases, the examples mentioned above prevent companies from earning these R&D tax credits year after year. Companies, in general, tend to forget they are eligible to apply for the relief in each year they have R&D. Take the example above of a company earning a £28,000 cash refund in one year and extrapolate that over 5 years, the cumulative amount becomes £140,000 of cash foregone.
In terms of filing an R&D claim for SME’s, our statistics demonstrate that 10 hours of total staff time (usually split among 3-4 employees) is required to prepare the claim when using a trusted advisor with experience in the filing process.
When trying to decide if your company qualifies, the key item to consider is the development side of R&D, not the research side. This is where virtually all the activities of R&D claims are made. It is basically shop floor R&D that qualifies.
In this day and age, all companies must develop new or improved products and constantly improve their processes. This is what the R&D tax credit program funds.
With the right trusted advisor, a cost benefit assessment can usually be made in 15-20 minutes. By having RDP Associates Ltd. facilitate the R&D claim, companies can eliminate wasted time to prepare information not required or claim a project that is ineligible. More importantly, it allows companies to focus on what they do best and continue to develop/improve its products and processes.
A quick review of data and statistics should force any company to seriously consider making an R&D claim; otherwise a significant amount of money is being left on the table.
If you are still convinced your Company is not facilitating R&D activities, we ask you to consider our “5 P’s”:
1. Are you developing new or improved products?
2. Are you improving or developing new processes?
3. Are you filing for a technical patent?
4. Do you have professional labour on staff consisting of engineers or Ph.D’s , MSc’s BSc’s (technical staff)
5. Are you developing prototypes or bespoke equipment?
If you answer yes to any of the above, it is likely your Company is eligible to claim R&D tax relief. You should contact your trusted advisor to determine if you qualify.
Brian Cookson is the Managing Director of RDP Associates Ltd. RDP assists both large and small sized businesses, including working with accounting firms and their clients, with preparing R&D tax relief claims. Brian may be contacted at bcookson@rdpassociates.com.
