Top 5 sectors claiming R&D Tax Credits

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The R&D Tax Credits scheme was rolled out by the UK government in the year 2000 for SMEs and 2002 for larger companies. The idea behind it is that it encourages businesses to engage in innovative activities that require an element of research and development by helping to cover the costs involved. This is either done by offering a reduction in the company’s Corporation Tax liability for that year, or as a tax credit lump sum. It’s available to businesses across any sector and can be used for all sorts of R&D projects, as the Government’s definition of what qualifies as an R&D activity is mercifully very broad.

Over the years since this introduction, awareness around the availability of R&D Tax Credits has grown significantly and the scheme has understandably become very popular indeed. However, there are still many businesses who, for a number of reasons, mistakenly believe that their organisation or industry is not eligible to make an R&D Tax Credit claim, which is usually not true.

For SMEs alone, the average claim every year can be worth £55,000 so it’s well worth them completing a thorough application. Quite simply, although the application process can be a little more involved than that of some others, successful applications can be worth some serious money. Can your clients afford to miss out?

To provide an idea of which UK sectors can claim and how much for, we’ve put together a quick run-down of key functions found in every industry at a glance. If one or more of your clients operates in one of these sectors, make sure they are aware that they could very well be eligible.

1. Administration and Support Services

Average number of R&D claims per year: Around 1,100

Average annual value of claims: £80 million

A few examples within this sector:

  • HR companies
  • Call centres
  • Rental and leasing firms (for machinery or vehicles)
  • Recruitment agencies
  • Tour operators

Top tip: Cloud technologies are growing in popularity, and fast. The upshot of this is that many companies in this sector are compelled to offer their services online using a SaaS model. The costs involved in planning, designing and developing such platforms are often classed as R&D expenditure and can therefore be included in a tax credit claim. This is because there have likely been technical challenges around performance and scalability for example.

2. Information and communication

Average number of R&D claims per year: Around 5,200

Average annual value of claims: £385 million

A few examples within this sector:

  • Software publishers
  • Insurance firms
  • Publishers of books, mailing lists and directories
  • Wireless, wired and satellite telecoms services
  • Fund management companies
  • Business and domestic software development
  • Video, movie and sound production

Top tip: Software development agencies are very often strong candidates for R&D tax relief claims. Even if a business designs software that works in a very similar way to one that’s already on the market, the technical challenges involved may be different and therefore the resources invested in designing its unique architecture and methodology will still be considered as R&D expenditure.

3. Manufacturing

Average number of R&D claims per year: 5,000

Average annual value of claims: £770 million

A few examples within this sector:

  • Manufacturers of chemicals, gasses, rubbers, oils and plastics
  • Manufacturers of paper, wood, glass and metal products
  • Manufacturers of vehicles, industrial equipment and electrical goods
  • Clothing and footwear manufacturers
  • Food and drink manufacturers

Top tip: The manufacturing sector is the single largest benefactor of the R&D Tax Credits scheme with businesses investing in industry compliance, product development and the improvement of their production processes.

4. Wholesale and Retail traders

Average number of R&D claims per year: 2,000

Average annual value of claims: £100 million

A few examples within this sector:

  • Retailers of electric goods, books, food, software and others
  • A broad range of wholesalers, particularly in food, electricals and cosmetics
  • Agencies involved in the sale of chemicals, household goods, food, agricultural materials and others
  • Vehicle sales and repairs

Top tip: Eligible expenditure for R&D Tax Credits is not reserved solely for projects which are client-facing. A number of wholesalers and retailers invest in developing ideas to automate or better streamline their business operations. This could include stock level management software for example, or devising a schedule for more efficient stock delivery.

5. Technical, Scientific and Professional

Average number of R&D claims per year: 4,100

Average annual value of claims: £525 million

A few examples within this sector:

  • Bookkeeping and tax consultancies
  • Public relations and communication firms
  • Biotechnology firms
  • Advertising and media agencies
  • Engineering and architectural firms
  • Security systems and services

Top tip: Claiming R&D Tax Credits can be especially valuable to engineering, pharmaceutical and science-based firms as it helps with offsetting the expense of developing and testing new technologies, medicines and materials. Such activities that are undertaken on behalf of another company may also be eligible.

Could your client be missing out on the R&D Tax Credits it’s entitled to?

With R&D Tax Credits being payable on a massive range of innovative projects, it’s likely that even clued-up clients may have R&D activities they can claim for but don’t. In fact, many companies could well be missing out on a vital financial incentive, whether they are currently profitable or not.

Even if a company does not operate in any of the sectors mentioned above, it may well still be eligible to put in an application. With so many factors to consider, and a very specific application process that businesses need to undergo, it’s vital that accountants understand exactly what can be claimed for and how.

Try out Tax Cloud

If you’re unclear about any aspect of R&D Tax Credits, feel free to speak to us here at Tax Cloud UK or try out our handy Tax Cloud Online Portal for Accountants. Providing all accounting firms a quick and effective way to offer comprehensive advice on all R&D Tax Credit claims, it was designed and developed by the experts at Myriad Associates, and integrates with Xero too. It’s an excellent way to bring in new clients to your accountancy firm and boost your bottom line too.

Feel free to contact us at Tax Cloud on 0207 118 6045 or use our contact form today.