Reducing costs for innovators with Government aid
Driving Research and Development (R+D) is evidently valued by government as demonstrated within the Industrial Strategy Green Paper. The government already provides tax credits to companies who spend on research and development to aid innovation within the UK. In the recent budget it was stated that government will put forward initiatives to increase the simplicity around claims and will also improve the awareness of the R&D tax credits scheme.
The important questions here are why would the government provide tax relief to businesses who are innovating and how can this aid you as business.
Benefits of Research and Development
We all know that Innovation in industry can save manufacturing time and money and many of the products designed can help other businesses operate more effectively. A good example of this would be a machine designed by one of our clients that quickly processes fire doors used in residential and commercial properties, cutting lock, hinge and vision panel recesses. The innovative design significantly reduces lead time and simplifies the process. With this machine it is possible to process 50 different door types and sizes in the same time as processing 50 doors of the same type. It will also be possible to manufacture door frames on the new machine ensuring that the door hinges, lock and keep in both door and frame, always align together eliminating waste and re-work.
Research and development may be applied to various activities and in a nutshell if your business is developing a new or even an existing product, idea or system then the time and financial input may qualify for R&D credit. There are thousands of businesses which innovate with benefits which go wider than just making profits. Innovation in general increases the competitiveness within an industry and provides a new benchmark for a whole industry to move forward. If the innovation is occurring in the UK this gives opportunity for the UK firm to move ahead of global competitors.
How can this help you as a business?
One thing is for certain, research and development can be extremely expensive and hard to budget for. Exploring new waters is a risk in itself and entrepreneurs may be hesitant to invest so much in R&D with the fear they may not get a result. If you feel as though your business can be driven forward by research and development, then it may be worth contacting HMRC to see if you are eligible for this.
Another client of ours is lighting up the country with their energy efficient LED system. Due to the nature of their business a heavy amount of investment is required for research and development. The amount of expenditure necessary would mean the company would not be profit making but the tax credit scheme allows them to make significant technological advances.
Profit making SMEs who spend £200,000 for R&D which qualifies under the scheme could receive up to £52,000 as a tax refund or reduced tax liability. Loss making SMEs can receive up to a £66,700 credit for each £200,000 spent.
The R&D credit can either be in the form of a tax deduction or possibly used as a cash tax credit dependent on whether your business is making a profit. Claims can be made for up to the last two accountancy periods. If a claim is not made by the financial year end, the initial year you may have been eligible for a refund from may finish and therefore that year may no longer qualify for a refund.
At Trade and Export Finance we find it refreshing to see the fantastic products which businesses are producing. You never know, we could be funding your next batch of orders that have been pioneered through the credit scheme.
If you wish us to arrange a no cost referral with an expert to see if you are eligible to claim please contact our banking consultant, Phillip Hyde, on 0121 794 0280.