Garry Keith is Business Development Manager for R&D tax relief specialists Jumpstart. Here he looks at how Brexit could impact on the crucial area of R&D tax relief.
Britain is renowned for innovation and manufacturing excellence across the world. However, figures show that spending on research and development (R&D) is lower in the UK than in similar EU countries. With the true impact of Brexit on the UK economy still an unknown, one thing is certain: British industry will need to be even more competitive and inventive - and research and development will play a key part in that.
Currently, many UK businesses are entitled to claim money back from the government for some of the costs associated with carrying out research and development. This R&D tax relief has been instrumental in helping British companies lead the field across a range of industries. So as Brexit approaches, many businesses have queried what that might mean for the R&D claims process.
Calling on the government
Industry certainly recognises the importance of R&D spending. Earlier this year, the CBI urged the government to look at ways of raising R&D spending to three per cent of GDP, almost doubling the levels recorded in 2015. The government has responded by pledging an extra £2 billion a year on R&D spending by the end of the current Parliament (an increase of around 20 per cent). Chancellor Philip Hammond also acknowledges that: “We must build on our strengths in science and tech innovation to ensure that the next generation of discoveries is made, developed and produced in Britain.”
Brexit has thrown up much uncertainty, but in our experience, since the referendum, more and more companies are coming forward to claim or back claim. As a result, we are currently claiming back over £1 million of eligible R&D activity for clients every week. As it seems likely that there may be a tightening of funds available post-Brexit, it may be that people are claiming now so they don’t miss out. On the plus side, the rules on state aid may well be more relaxed when the EU is no longer able to define some of the rules. It also seems likely that, with the government pledging their commitment to R&D, the tax relief rules may change to compensate.
SMEs seem committed to R&D with the latest SME Outlook Survey revealing that many SMEs are focused on growing their business during the next 12 months. However, the survey also showed that SMEs are failing to take advantage of R&D tax relief as well as other tax breaks such as Entrepreneurs Relief and Business Property Relief. In fact, only 7 per cent of respondents had used any of these schemes within the last year.
This is a problem that we encounter regularly as many organisations fail to realise that they’re eligible, often because they are unsure about which activities qualify. According to HMRC’s criteria, to qualify a project should seek to ‘achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty’. The business must also be a limited UK company and liable for Corporation Tax. Claims can be made within the company’s last two financial years and the project doesn’t even have to be successful. However, the amount that can be claimed varies depending on whether the business is making a loss, breaking even or profitable. There are also different schemes for SMEs and large companies.
The claim process can be complex, which is why some companies use R&D tax relief specialists to submit and manage claims. Furthermore, the technical reports for claims need to be presented in simple terms for HMRC’s purposes, which can be difficult when explaining a technical project. In fact, key to the process is having an understanding of the technology – not just finance.
Whatever the post-Brexit economy looks like, it’s the advancements in technology that will enable the UK to stay competitive. Research and development will be a crucial factor in maintaining the UK’s position in the challenging times ahead – and so will a workable and rewarding R&D tax relief scheme.
About the author:
Garry Keith is Business Development Manager for R&D tax relief specialists Jumpstart . Jumpstart employs scientists and engineers to work with UK companies to identify and justify eligible projects for R&D tax relief submission. It has helped its clients recover over £95m in R&D tax relief.