Clients in manufacturing? Get them an R&D tax rebate
Rummage through your mind (and possibly your client database). Are any of the companies your practice works with in the field in the manufacturing sector? If so, you could make their year (and earn them a huge tax rebate) thanks to R&D Tax Credits.
What are R&D Tax Credits?
The R&D Tax Credits scheme is a form of tax relief that’s been offered by the UK government since the year 2000. It’s essentially designed to encourage company innovation and growth by ‘refunding’ a substantial proportion of research and development costs.
Eligible R&D projects and expenditure are many and varied, with up to 33% reclaimable so it’s certainly generous. If an advancement in science or tech has been made (usually through the development of a new product or service, or the improvement of an existing one), R&D Tax Credits should follow.
The relief is given either via a reduction in the company’s Corporation Tax or as a cash lump sum if the company is loss-making.
Myriad Associates is a leading R&D tax and funding specialist with well over a decade of experience in this complex area. Therefore, if you suspect your clients may be able to benefit, we strongly recommend reading through our R&D Tax Credits information page for more information.
Why manufacturing and R&D go hand in hand
According to statistics from The Manufacturer, manufacturing contributes 11% of the UK’s GVA and employs more than 2.5 million people. Manufacturing is also responsible for 70% of the UK’s R&D spend, as the sector constantly strives for the latest innovations and efficiencies.
The fact is, the manufacturing faces the triple challenges of supplies shortages, rising costs and an ever-shifting political landscape. There’s also of course the post-Covid ‘Build Back Better’ agenda and ongoing Brexit challenges, making it a critical time for manufacturers.
The only solution in meeting these challenges is innovation. Smart technology is also meaning more and more industrial and manufacturing processes are being automated. This is helping to lower costs, improve efficiency and help the sector withstand any sudden shocks and downturns.
The Fourth Industrial Revolution is well underway - but innovation is expensive. R&D Tax Credits can make all the difference in manufacturing companies meeting these costs or not. The scheme can also unlock cash for future R&D investment.
At Myriad Associates, we work with businesses and accountancy firms across the UK, Ireland and France. Any UK company that’s registered for Corporation Tax can benefit from R&D Tax Credits, regardless of size or sector. But there are clearly certain industries that undertake technical and scientific projects much more vigorously than others. Manufacturing is certainly one of them.
What kinds of manufacturing work can attract R&D Tax Credits?
Manufacturing is a pretty broad brush so it would be impossible to list everything here. But it’s also the type of sector where the sheer amount of run-of-the-mill daily activities that go on tend to get overlooked as being eligible for R&D Tax Credits.
By not flagging up R&D tax relief with your clients and identifying (with our help) which of their specific R&D costs apply, they could easily be missing out on tens or even hundreds of thousands of pounds.
Common qualifying activities include:
- Feasibility studies
- Planning and managing projects
- Defining technical objectives
- Identifying scientific and/or technical uncertainties
- Reviewing new and competing technologies
- Analysing, designing and developing the technology
- Producing technical specifications or other documents to explain and support the R&D project and advancement
- Testing new products, software, processes or machinery
- Support activities that directly relate to the R&D project such as finance, administration, personnel services and training.
Easy mistakes in manufacturers’ R&D tax claims
In our experience, there are three key areas where R&D tax relief claims can go awry. Any of these scenarios can attract an HMRC enquiry into your client’s wider tax affairs, which is why partnering with an R&D tax consultancy is a wise move.
Developing prototypes is a very common element of the R&D process for manufacturers. However, if the prototype is then sold on to a third party, its development won’t be eligible for R&D tax relief.
This is a really common one. Many manufacturing companies choose to remunerate their directors with dividend payments as this is more tax efficient of them personally. However, dividend payments cannot be included in an R&D Tax Credits claim. With this in mind, if a director plays a strong role in an R&D project, it may well make more sense for them to be paid by salary only. Again, our team can discuss this with you and your client individually.
This further highlights the requirement for your client to plan for R&D Tax Credits - not leave it until the last minute.
The costs that result from an R&D project should generally be included in the company’s Profit and Loss account. Manufacturing firms often have very large fixed assets that are used in the R&D process. However, in many cases these fixed assets cannot be claimed for under the scheme’s current rules. Some exceptions for Intangible Assets can be included, which we can advise on.
This article is brought to you by Myriad Associates
“Myriad Associates were recommended to us by a precision tooling company and we’ve been delighted with their approach and expertise. Myriad Associates managed the entire R&D tax credits claim for us from start to finish and only required 2 to 3 hours of our time... We’ve been delighted with their approach and expertise.” - Daften Die-Casting Ltd.
The Myriad Associates team consists of R&D tax experts that can work with accountants and their clients in claiming the maximum amount of R&D tax relief possible. Thanks to our strong relationship with HMRC and over 10 years in business, we’re proud of our 100% success rate.
Let us help you help your clients with their R&D tax relief claim.
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