If your business does any kind of research and innovation, you could be sitting on a goldmine. Problem-solving could earn you tax relief of around £60,000, as expert Sandy Findlay explains
Hi Sandy. So how does this tax credit system work?
Basically, it’s a tax benefit for companies spending money on innovation and expanding their field of science and technology. But it’s not about research and development (R&D) as most people understand it; instead, it’s more about doing innovative things and solving problems that have never been solved before in your particular industry. So it’s a broad spectrum of things – it’s not just about inventing and developing new products.
So you don’t have to wear a white coat and work in a laboratory to qualify?
No, not at all. Any company pushing towards an advance in the technology of its field could be doing R&D, regardless of the sector. So it doesn’t need to be an actual product – and in fact we’re seeing more and more process innovation involving activities that are eligible for relief, like changing manufacturing processes to streamline operations or reduce energy usage. Or in using different materials or increasing automation. All these kind of things count as innovation.
And is it worthwhile trying to pursue it?
Well, the current average claim of a small and medium enterprise (SME) in the UK is around £61,000, so we’re talking some pretty useful numbers.
So what kind of things could count as R&D in the electrotechnical sector?
As mentioned previously, it doesn’t have to be an actual product. So it might be making an electrical motor run faster than it’s run before, or reducing the amount of power that an electrical circuit requires. It’s doing anything that will help and advance the industry baseline and that involves coming up with new solutions to challenges anywhere across the industry as a whole.
So what could a typical business expect to get out of it?
Every case is different, but typically, for every £1 you spend on R&D, if you’re in profit you’ll get an additional 25p tax benefit. And if you’re in a loss-making position and you surrender your losses, you could get 33.35p back for every £1 spent on eligible activities. So if you’re an SME, you’re in profit, and you spend £50,000 on R&D in one financial year, you could get tax relief of £12,500 – that’s not a bad reduction in tax.
What if the business isn’t in profit and has actually made a loss?
Don’t worry. You can roll the benefit over until you are profitable and use it then. Or, depending on your financial position, you can surrender your losses and receive an actual cash credit.
Does the money need to be reinvested in more R&D?
No – the funds can be used in any part of the business. HMRC recognises that sometimes the best investment for a company is in areas other than R&D. Either way, more money is freed up to innovate.
But putting together a tax credit claim is complicated, right?
Again, with a bit of help, that doesn’t have to be the case. The first step is to talk to an R&D tax credit expert like Jumpstart. They can help you put together a robust, maximised and defendable claim so that your business can reap the rewards, without worrying about unwanted attention from HMRC. All work is carried out on a no-win, no fee basis, so if you don’t ultimately qualify you won’t owe anyone a penny. Which again, is good for your firm’s balance sheet.