The manufacturing industry has seen significant and rapid change in recent years. Driven largely by advances in technology and ‘Industry 4.0’, manufacturers now need to keep up to date with cutting-edge processes and techniques in order to adapt to their customers’ increased demands and expectations.
Innovation has never been more conducive to maintaining and building competitive advantage and has seen the manufacturing sector become considerably more high-tech than is often realised.
The UK Government recognises this and is using the tax system to encourage and support investment into British Manufacturing in several ways. One such measure is the Research and Development Tax Credit scheme, which was first introduced for small and medium businesses back in 2000, with a separate scheme for large companies following in 2002.
The schemes seek to provide valuable tax relief for qualifying R&D expenditure, either in the form of enhanced deductions from taxable profits or payable credits for loss making and larger companies.
Since their introduction, the value of these reliefs has continued to increase and at current rates, the SME scheme sees companies able to reduce their taxable profits by £230 for every £100 of qualifying costs, whilst the Research & Development Expenditure Credit (RDEC), which operates above the line, makes it possible for large companies to claim a payable tax credit at a rate of 12% of qualifying expenditure.
Yet despite being around for nearly two decades, there is still a common misconception that R&D Tax Credits are only available to scientific research companies with dedicated laboratories full of men in white coats, and this means that many eligible businesses in the manufacturing space are missing out.
In order for a project to qualify for relief, it must be able to demonstrate “an overall advance in science or technology, through the resolution of scientific or technological uncertainty”. This can occur whenever a company faces a technical problem, the solution to which is not readily available or deducible by a ‘competent professional’ working in the field. That ‘competent professional’ need not be a highly qualified scientist if that would not be typical of your industry.
The scope of R&D Tax Credits is broad and your company does not need to be developing a brand new, state-of-the-art product or service to be undertaking qualifying activity.
Perhaps you’re streamlining existing manufacturing processes through automation? Or improving existing product performance with the integration of a new or alternative material?
Maybe your company is developing a product with exactly the same characteristics as existing models, but it is built in a fundamentally different manner that has increased cost advantages or operational efficiencies?
All of these activities, that are commonly misconstrued as routine by manufacturing businesses, could be eligible for additional tax relief under the R&D Tax Credit schemes, and professional advice is key to making sure you’re not missing out.