If your business is creating new ways of working then you could benefit from research and development tax relief. Alex Price CTA, Director at ForrestBrown, explains how you can make the most of the scheme
The last year or so has been turbulent for electrical contractors, with the Brexit transition ongoing, COVID supply chain disruption and changing safety regulations. For SELECT Members, tax relief offers a valuable and established source of funding amid the uncertainty.
Research and development (R&D) tax relief is a government incentive designed to reward UK-based companies for investing in innovation.
The latest HMRC research suggests that for every £1 awarded to an innovative company via R&D tax relief, up to £1.28 is stimulated in additional R&D expenditure for SMEs, and £2.70 for large companies. This happens because businesses often spend the benefit they receive on funding the next big push in their R&D work, e.g. hiring new skilled staff, expanding premises, or investing in new machinery.
The incentive is split into two parts: The SME R&D tax credit and the large company Research and Development Expenditure Credit (RDEC). The SME credit is worth up to 33p for every £1 spent on qualifying innovation.
If your business is investing £250,000 in R&D each year, you could receive up to £83,375. For many of our clients, it can be much more.
R&D in the world of electrical contracting
Innovation in the electrical contracting industry is diverse, taking place among business involved in the design, manufacture and testing of products.
In recent years, with the increasing demand for more energy efficient buildings, businesses have had to adapt their processes to become greener. These pressures, along with changing safety regulations, have driven a widescale need for businesses to evolve and innovate.
“Companies need to be especially careful to seek advice from the right place”
Understanding what qualifies as R&D can be tricky. At ForrestBrown, we find that the following two questions help:
Are you creating a new product, process or service?
Are you changing or modifying an existing product, process or service?
If you’re not sure if your project is possible, or you don’t know how to achieve it in practice, you could be carrying out qualifying R&D. And if you’ve taken a risk because your outcome was uncertain, this could be R&D too.
Your R&D is likely to relate to either adapting to regulatory change, investments in new systems and improvements, or safety innovations.
Examples of qualifying innovation in the electrical contracting sector include:
Designing or manufacturing electrical wiring and layouts for the installation of control systems
Designing and installing electrical/ building control systems for regulated buildings, such as hospitals or research facilities
Improving or developing alternative building control systems
Integrating multiple systems into one logic circuit.
Claiming the right way
With the events of COVID, businesses have been approached from all angles with the offer of bad advice. As a result, we’ve seen an increasing amount of misinformation circulating on what qualifies as R&D.
Companies need to be especially careful to seek advice from the right place given HMRC’s current focus on compliance. In response to a spate of fraudulence, HMRC has raised the bar when it comes to the quality they expect to see, hiring 100 extra full-time R&D tax compliance staff at the end of last year.
To be confident you’re partnering with a reputable adviser that can get the best results for your business, look out for a specialist that will provide:
A multi-disciplinary team with a balance of tax credentials and hands-on industry expertise
Policy-level insight in the latest thinking from HMRC
A flexible approach that can be adapted to meet your unique business challenges.
The three steps of a successful R&D tax relief claim:
For electrical contractors across the UK, R&D tax relief offers established, tried and tested source of funding. But the incentive comes with nuances.
Every business is different, of course, but in our experience, there are three pillars to a good experience:
Value: You receive every penny you deserve, no more, no less. Qualifying costs are easily overlooked, leading you to miss out.
Time: A claim should not be time-consuming. Many advisers will push key tasks back to you, like capturing all qualifying costs and defining project boundaries.
Risk: Vitally, a high-quality adviser will insulate you from risk. The risk of HMRC enquiry cannot be totally eliminated, but it can be mitigated. And in case it happens, not every adviser offers enquiry support as standard (always ask about this when negotiating a service contract).
It’s on these three points where a specialist consultancy can make a big difference. For SELECT Members, now is the perfect time to carefully assess R&D tax relief and start claiming. Done right, the incentive can help transform your business and propel growth.
ForrestBrown is the UK’s No1 specialist R&D tax credit consultancy. We’d love to hear from SELECT Members. If you have any questions or would like to find out more, get in touch on 0117 926 9022 or via email at email@example.com and mention you are a SELECT Member.