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Research & Development (R&D) tax credits


R&D tax credits are nothing new, they were brought in years ago to encourage investment in innovation.


Isobel Savage, Senior Tax Manager


The principle is reasonable – if it costs less (via tax relief) to invest in new products/materials or improvements to existing ones, businesses are more likely to do so. This relief has become more and more valuable over the last few years. In fact for £10k of qualifying expenditure incurred after 1 April this year for an SME paying tax at 24%, the total tax relief can be as high as £5,400! It effectively only costs the business £4,600.


The biggest barrier to claiming this relief that we have found appears to be people’s perception as to what qualifies as R&D.


Old Mill have enjoyed being involved with quite a significant number of cases where we have made some interesting and cash saving claims for our businesses, in situations where the client had been fairly sceptical.


Before we give some real life examples, I will set out the fundamentals of the relief:


1. If your business is liable to corporation tax, then it may be eligible for Research and Development tax credits.


2. Your Company must be spending time and money on projects seeking to attain an advance in a field of science or technology. You need to be able to


identify a technological or scientific uncertainty i.e. a problem which you are working to overcome. You might not even be working on an entirely new product but rather an appreciable improvement to an existing product, material, process or service which is relevant to your business.


3. HMRC expect you to be able to say “why a competent professional in the field couldn’t readily overcome the uncertainty”. In English, this means we need to be able to say what else is on the market, what knowledge is publically available and why this wasn’t standard work that would be expected in any business.


Although there are other rules to consider, including when qualifying R&D starts and when it ends, if you think your company may have undertaken some qualifying work then don’t hesitate to ask your accountant whether R&D tax credits might be available to you.


Here are some real life examples of R&D tax credit relief we have worked on with our clients and potential future claims:


1. Using an anaerobic digester in a food business where the waste input material was out of the ordinary.


2. The development of new potential uses for the waste product of a manufacturing plant.


3. Overcoming the technical problems of replacing one type of paper with another in a product which caused problems with the manufacturing process and other materials used and the adhesive.


4. Overcoming issues where the reduced fat content required in a food product had a negative effect on its taste, texture and shelf-life.


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