Gareth Edwards, Managing Director of R&D tax specialist ela8 outlines the benefits and some common misconceptions
?Many successful businesses have used times of recession to focus on innovation and product development, preparing the springboard to outpace their rivals once growth returns. R&D tax relief can help fuel this strategy, even supplying cash to lossmaking SMEs?.
Gareth Edwards, Managing Director of R&D tax specialist ela8
It is an established mantra that R&D activity underpins economic success, more so than ever in these fastmoving times. The strong tides of change create lasting commercial opportunities, and change means looking at things in new ways. The UK government wants to encourage technology-based innovation, and R&D tax relief is one carrot that is on offer. Perhaps the biggest obstacle to applicants is the common feeling that R&D is something that happens in universities or laboratories, but the truth is the relief is also aimed at companies that are applying technology in practical ways to create something innovative.
Even just an appreciable improvement to an existing process, material, device, product or service may be eligible, provided this is done through technological changes. Such improvements do not have to be functional in nature; finding a more cost-effective process to manufacture something or build a zero-carbon house may well pose technological challenges.
Experience has shown that eligible activities can occur in a wide range of industries, and the all-pervasive use of IT and the internet has presented many opportunities for innovation. One common misconception is that a company cannot claim R&D tax relief if it is being paid to carry out the work, but even this is often possible. Typically this applies to engineering consultancies or companies offering development services.
Last year there were major changes to the relief, significantly increasing the benefits available and doubling the thresholds that determine whether a company qualifies under the SME regime. The SME R&D tax regime is much more generous, and this change could make an enormous difference to companies who now change status ? in particular they may be able to exchange losses for cash for the first time.
The processing of claims is now handled by specialist HMRC units, and it might be a surprise to discover they are keen to encourage applications ? at the end of the day the scheme is there to kick-start innovation, not present barriers. It is important to understand all the R&D tax rules before putting together a claim, as this can be affected by other grants or subsidies. These interactions can lead to rather surprising aspects, such as an SME claiming under both regimes in the same tax period.
R&D tax relief claims can be made for up to one year after a tax return is due, so back claims are possible. Often eligible companies continue to make claims on an annual basis, so there is a real incentive to get the ball rolling.
Contact: Gareth Edwards
Tel: +44 (0)1869 346 095
Added the 31 August 2009 in category Innovation UK Vol5-1