Making R&D tax relief easier for small companies
Updated: Jul 5, 2020
Last year HM Revenue & Customs (“HMRC”) published a guide to research & development tax relief. It’s a great example of helpful guidance in practise and provides straight forward definitions and explanations of how the scheme works for small and medium sized enterprises (SMEs).
It contains worked examples with links to published HMRC guidance along with case studies for the agri-food sector, ICT, advanced materials, advanced engineering, life and health sciences and construction; a sector that is often forgotten about when making such claims and whose examples are shown below:
Construction In general, this is a traditional industry. However, an increasing number of companies undertake R&D to exceed the traditional methods in terms of life expectancy of buildings, durability or robustness.
New cladding system: – A company created a cladding system which had the appearance of ‘normal’ brickwork but incorporated the capacity for off-site construction, improved fire protection and suitability to fast track production. Mechanical fixing rather than wet mortar provided strength and durability, which together with the capacity to construct in all weather conditions provided significant cost savings. The uncertainty of the material in the cladding system and the technological uncertainties surrounding the fixing were qualifying R&D projects.
Adaptive building layout: – Another company specialised in constructing laboratories. To combat contamination, the company designed some new buildings with removable sections. Exterior walls could be slid away and a unit could be removed in total and replaced by a new unit before the exterior walls were slid back into place.
The technological uncertainties surrounding the mechanisms to achieve this had to be overcome before the concept proved viable, making this a qualifying project.
Modified wood coating: – A further example of innovation is a company which used wood in part of a project. Traditionally the wood needed to be of a certain age but the company was able to modify a coating so that younger and cheaper wood could be used whilst still having the required qualities.
Significantly this development was a small element of the overall conventional project. Only after discussion with the site foreman did the company directors realise that the modification and application of the coating qualified for R&D relief.
Source:- HMRC Research & Development Tax Relief (Making R&D easier for small companies) Nov 2016
R&D tax relief is designed to recognise and reward innovation by reducing your company’s tax bill and a copy of the guide can be found here.