ENTERPRISE & INNOVATION In the nick of time

Across the Midlands, Covid-19 has blown a huge hole in the financial planning and resilience of thousands of companies but many think themselves worse off than they really are. A large proportion of the most innovative firms in the

region will have spent years creating new products and processes before the pandemic struck, completely unaware that Government tax relief was available all along. The number of businesses looking to claim R&D tax

credits for the first time has inevitably shot up in recent months as worries for the economy focuses minds on the bottom line. This is a common theme in times of financial strife.

BUT WHAT ARE R&D TAX CREDITS AND WHO ARE THEY FOR? Every type of company can benefit from R&D tax credits. The scheme is not just for blue-chip companies at the cutting edge of technology. In fact, HMRC’s definition of R&D is attractively broad.

Any business that is doing something unique in creating new products, processes or services is almost certainly eligible if that work seeks to resolve a scientific or technological uncertainty. Firms benefit in two ways. They either get a reduction in

their limited company’s corporation tax bill or a cash lump sum.

FALSE DAWN But what if the R&D is a failure? This doesn’t matter. Even if R&D is unsuccessful, a company’s R&D tax credit claim is totally unaffected. Some incredible recent examples of R&D

claims include: • Inventing new methods to clean and recycle salvaged oil (tax benefit of over £378,000)

• Generating new solutions for video rendering and visual effects (tax benefit of over £299,000)

• Creating new HR software (tax benefit of over £102,000)

• Developing car battery technology to improve electric vehicle capacity (tax benefit of over £72,000)

• Creating bespoke customer relationship management (CRM) platforms (tax benefit of over £88,000)

• Adapting machinery to cut and bond cardboard and paper products (tax benefit of over £86,000)

• Developing new oil manufacture plant to create bespoke oil formulations (tax benefit of over £70,000)

• Creating data mapping tools (tax benefit of over £83,000)

R&D tax credit claims can be backdated up to two years so companies that have never claimed can discover they are in line for substantial windfalls. The best R&D consultants charge a contingent fee to investigate how much R&D a company is doing. This is the

44 business network October 2020

most efficient way of charging for consultancy services because the size of claims, and the amount of work involved, can be unclear at first and vary right up to the last minute because the rules surrounding the relief are quite complex.

CAPITAL ALLOWANCES But R&D tax credits aren’t the only tax relief often overlooked by accountants and businesses. Capital allowances (CAs) are routinely missed too,

despite also being hugely rewarding. CAs allow firms to offset the corporation tax they pay on profits against the cost of physical assets within commercial properties. This includes things like air conditioning, wiring, heating,

lighting and security systems — almost everything that would remain in the building if you turned it upside down. CAs are also available to sole traders and partnerships paying income tax. This area of tax law is evolving all the time at tax tribunals so it’s worth seeking specialist advice. In one recent case, a farmer won the argument when he

tackled HMRC over a grain silo. HMRC had decided it was just a building and wasn’t eligible for CAs. But the tribunal ruled that it was a building containing so many design features essential to its purpose that it should qualify. This is a great example of how CAs can help all kinds of businesses maximise their tax efficiency. We frequently come across companies that came close

to missing out on tax benefits worth hundreds of thousands of pounds. Don’t be one of them.

Two tax reliefs to turn to in a crisis By Kully Nijjar, associate director of specialist tax consultancy Catax

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