The Top 3 Industries that Benefit the Most from R&D Tax Credits
As long as they’re improving or creating innovative products, processes or services, any industry can benefit from R&D tax incentives such as R&D tax credits.
But three industries are better placed than most to take advantage of these schemes.
Before we find out what these industries are and why they’re ideally placed to claim R&D tax credits, let’s quickly recap on what R&D credits are.
What are R&D tax credits?
R&D tax credits are a government-funded UK tax incentive aimed at both SMEs and large companies. The tax incentive rewards companies for investing in the improvement or development of innovative products, processes or services. Eligible companies can claim up to 33% of what they spend on developing or improving these new products, services and processes.
That’s a brief overview of what R&D credits are, but if you want to find out more, read this.
Now, let’s look at the top three industries that get the most benefit out of this R&D tax incentive.
R&D industry #1: Manufacturing
Manufacturing is the production of goods, by hand or machine, usually on a large scale. And with 11% of all manufacturing companies claiming R&D tax credits, what makes it a prime industry for securing manufacturing R&D tax credits?
Why manufacturing is an ideal candidate for R&D tax relief
Although the concept is simple, the manufacture of products is always fraught with obstacles. For instance, many manufacturers face a constant battle with the challenges brought about by increases in demand, supply shortages, changes to industry legislation and balancing output with input to make a decent margin.
These problems typically put manufacturing companies in a position of risk where they don’t know what the outcome of a situation is likely to be. This forces them to:
“Research, produce and test to get to the end result. It is this process of researching and testing that the government is trying to reward.” – Converge
The solutions they develop to solve the challenges they face can often qualify as R&D.
What type of claims do manufacturers make?
With the average claim worth £46,970, manufacturers benefit from the highest average R&D claim value.
The R&D activity that manufacturers carry out can range from developing new products and increasing production line speed, to improving resource allocation and enhancing quality and compliance control.
For instance, here are some common manufacturing R&D claim examples:
- Installing a new machine and integrating it with their existing ones
- Making changes to a product because of new legislation
- Developing new processes to make larger volumes, quicker
- Trialling and testing new materials, components, substances, non-routine prototypes, methods or techniques
- Adapting new technologies from other industries to improve manufacturing processes or products
R&D industry #2: Software development
In simple terms, businesses within the software industry develop, maintain and produce software that tells computers what to do.
Why software development is an ideal candidate for R&D tax relief
“Software and IT are constantly evolving and adapting which makes this sector a primary target for R&D claims.” – ZLX
As our reliance on technology and computers grows, there is an ever-increasing need to develop new, ground-breaking software. And, as many of the activities surrounding the development of software include things like scoping, testing, prototyping and integration, this makes this industry ideal for making software R&D tax claims.
Although many software developers consider these activities just part of their day-to-day jobs, companies can claim back thousands of pounds on the costs spent on these projects. In fact, the average R&D claim for software companies is over £1,000.
What type of claims do software development companies make?
When it comes to making R&D claims, it isn’t necessarily the outcome that HMRC is interested in. It tends to be more about how problems are solved.
So, for example, software developers might claim for the following activities:
- Trying to overcome architecture and algorithm challenges
- Introducing new software development tools
- Developing ways to capture, transmit, manipulate, and protect data
- Building communication systems for online transaction processing
- Architectural investigations to improve systems
R&D industry #3: Food and drink
The food and drink industry includes any organisation that produces, serves, transports, or packages food and drink items. So, cafes, restaurants, pubs, delis, food manufacturers, caterers, food transportation services and packaging companies are all key components of the food and drink industry.
Why food and drink is an ideal candidate for R&D tax relief
“This is one of the top industries for R&D tax credits but also one of those that are poor in making claims.” – Converge
Gluten-free, free from dairy, zero carbs, no sugar and veganism are just some of the food and drink fads circling the food and industry market.
There’s always a new dietary trend, intolerance or allergy that needs to be understood and catered for. Plus, with the “food-on-the-go” market exploding, the need for longer shelf lives, the call for lower sugar or alcohol products and the demand for unique beverages, it’s no surprise that the food and drink industry is undertaking more and more R&D.
What type of claims do food and drink companies make?
With the average R&D claim coming out at around £50,000, below are some examples of the types of activities that companies within the food and drink industry file R&D claims for.
- Developing new flavours
- Reducing preservatives, salt, sugar or alcohol in food and drink products
- Increasing shelf life to reduce food wastage
- Using new ingredients to make healthier products
- Researching new allergies or food intolerances
So, if you have clients that are in any of these three industries, you should definitely look into their projects and activities as they might be eligible for R&D tax relief.
How do you know if a client is eligible for R&D tax credits?
Although you look after all your client’s regular accountancy needs, R&D tax relief is a complex, niche area that many accountants need some help, support or guidance with.
That’s why working with a specialist R&D tax consultancy firm like Myriad Associates can help you over-fulfil your client’s needs.
Who is Myriad Associates?
Myriad Associates only deals with R&D tax relief and innovative grant writing. This means we’re experts on all things R&D and pose no threat to you and your accountancy service offering.
We’ve been in the industry for over a decade and have a 100% success rate with filing R&D tax credit claims with HMRC.