Q&A with the experts
Research & Development Tax Credits (usually referred to as R&D) are probably not the words that are guaranteed to secure attention but with areas such as tax relief few and far between, PM has been following up on R&D for the industry with experts, CBTAx who conducted a question-and-answer session with BPMA members in January.
It is believed the promotional merchandise industry has potentially missed out on thousands in claims by not realising a claim could be made. R&D tax credits are a valuable government tax incentive that rewards UK companies for investing in innovation through qualifying projects.
Does this mean only science projects qualify? Research and Development qualification means companies that have a scientific or technological uncertainty a “competent professional” in the industry should not be able to easily resolve the issue or an advance in science and technology.
What does this mean for our industry? Many areas can be looked at: iterative bespoke product design development should be considered for claims, manufacturing process improvements to achieve unique product specifications, improve production rates, cost-efficiency, minimise defects, material research and evaluation activities, design and manufacturing process validation through prototyping, mock-ups and trial-and-error.
Not only that, but collaborative approaches to resolving technical project challenges and internal process improvements (IT systems/CRM systems) that have increased efficiency/added capability could also qualify.
Does this only apply to suppliers then? Not at all, in fact every company is encouraged to explore claims. BPMA CEO Carey Trevill noted the Association files a claim each year to look at how they have explored systems and improvements, helping claim back tens of thousands over the years to further invest back into member services.
So how do you go about starting the qualification process? R&D tax credits are calculated based on your R&D qualifying expenditure so to make an R&D credit calculation, you need to identify qualifying expenditure and enhance it by the relevant rate which produces your ‘enhanced expenditure’.
Once you have deducted your enhanced expenditure from your taxable profits, or add it to your loss, it will result in either a Corporation Tax reduction if you are profit-making, a cash credit if you are loss-making or even a combination of the two.
Does claiming take a long time? If you’re busy and this is something you haven’t done before, what can you expect? CBTax’s Steve Oakenfull explained after an initial discovery conversation, around an hour and half is needed to look at what claims could work and together with information your accountant can provide. With SMEs able to claim up to 33p for every £1 spent on qualifying R&D activities, the average claim made by SMEs in the UK was £57,228 in 2018-19. Large companies are able to claim up to 11p for every £1 spent on qualifying R&D activities. The average large company (RDEC) claim in the UK was £632,931 in 2018-19.
Oakenfull reflected on this perhaps being the best hourly rate return most companies will have ever seen so worth investing the time to see what is possible.
But what costs qualifies? Staff salaries, employer’s NIC, pension contributions and reimbursed expenses, subcontractor’s costs, materials and consumables and software can all be part of a claim.
Is timing important? Yes, preparing a claim before year end will indicate quickly if you can reduce corporation tax for the year ahead and if you’ve had a loss-making year, make a difference with a cash credit. You can also look at retrospective years, up to two, but there is a time limit, so it’s recommended you don’t delay see what is possible.
Make sure you take advantage of what’s on offer for tax credits and a little time investment could bring a much needed financial windfall after a tough trading period.
BPMA members can access a complementary consultation via CBTax. For more details, log into member section at bpma.co.uk or contact Tom Robey for more information.