costs linked to market research, initial feasibility
studies, patent applications, production and
distribution are excluded.”
Capitalised expenses
R&D reliefs are for the day-to-day running costs
of R&D projects. So capital expenditure, such as
plant, machinery and buildings, won’t qualify.
However, as Chen points out, things can
get a bit confusing when tax and accounting
rules interact. “For example, the International
Financial Reporting Standards require companies
to capitalise staff and material costs from the
development phase of R&D projects, if they
meet certain criteria. So, does this mean that
capitalising staff costs in the accounts prevent
you from getting R&D tax credits on them?”
The answer, she says, is no, noting HMRC’s
internal manual: “The accounts treatment is not
conclusive of whether expenditure is revenue or
capital for tax purposes.” (https://bit.ly/2tjqcuK)
In other words, for R&D relief, Chen advises
following the tax rules, not the accounting rules:
“if your staff costs qualify for R&D tax credits,
it doesn’t matter whether they’re recorded as
expenses in your P&L or as part of an asset on
your balance sheet.”
How to claim R&D tax credit
The procedure for claim R&D tax relief is
straightforward through the full company tax
return (CT600). It helps if to provide a brief
summary of the project to support the claim.
HMRC advises that the summary should
answer the following four questions:
● What is the scientifi c or technological advance
that the company is trying to create?
● What scientifi c or technological uncertainties
were encountered?
● How and when were the scientifi c or
technological uncertainties overcome?
● Why wasn’t the knowledge being sought readily
deducible by competent professionals?
“Helpfully,” adds Chen, “HMRC now off ers
companies applying for SME R&D relief for
the fi rst time the option of obtaining Advance
Assurance (https://bit.ly/1MVQWo1). This gives
them early guarantee that their R&D will be
accepted”.
Just because a project may have qualifi ed for
R&D relief but have not yet made a claim, don’t
think that it’s too late – it’s not. Firms have 12
months after the original tax fi ling deadline to
make a backdated claim. Take expert advice, and
don’t lose out through lack of knowledge.
“R&D reliefs support
companies that work on
innovative projects.”
RESEARCH & DEVELOPMENT MARCH 2019
Take advantage of the
advice available
David Atkinson, UK head of manufacturing, SME & MC
Commercial Banking at Lloyds Bank (pictured, right), says
that the bank’s own research – published in February 2019
– found that around 90% of manufacturing and engineering
companies invest in some kind of R&D. In his view, the challenge
now “is that too many still either don’t realise they are doing it
or that they can claim through the government’s tax incentive
programme for such investment.”
In terms of ensuring access to credits without undue delay,
Atkinson suggests that manufacturers “take advantage of the
professional advice available to them every year, either directly via
their account or via local specialists who can off er support with
claims working alongside their accountancy professional.”
And this advice is key to success reckons Atkinson; it is the
reason he also suggests seeking out a specialist tax advisor. As he
notes, “R&D reliefs support companies that work on innovative
projects in science and technology… it can be claimed by a range
of companies so long as they seek to research or develop an
advance in their fi eld.
While Atkinson can’t, for professional reasons, give too much
detail, he says that Lloyds has seen “numerous examples” across
the manufacturing and engineering companies it supports. “We
have raised the awareness with clients and encouraged them to
speak with their professional advisors, sometimes resulting in
hundreds of thousands of pounds of tax credits being given back
to them through successful claims that they never even knew
they were eligible for.” He emphasises that keeping on top of
tax credits is important because any claim can only go back two
years – “by leaving it unexplored a fi rm could risk missing out on
eligible claims, and the opportunity to reinvest in the business as
a consequence.”
company. Also, subcontractor
costs do not qualify for RDEC.
As for externally provided
workers, some costs would
qualify for workers directly
working on the R&D project, but
recruitment costs would not.
In addition, fi rms can claim
the day-to-day costs relating
to materials and utilities,
including electricity and water
bills. Software costs can also
be counted: where a piece of
software is only used partly
for the R&D project, the
relevant cost will need to be
apportioned.
“Remember,” says Chen,
“R&D expenses qualify for
relief only when they relate
to resolving scientifi c or
technological uncertainties. Any David Atkinson, head of manufacturing, Lloyds Bank
both reliefs provided “the staff
in question are directly and
actively engaged in the R&D
project.” But diff erent rules
apply to diff erent kinds of staff .
She off ers more detail:
For employees, their salaries
and wages, national insurance
contributions and pension
contributions all qualify for
R&D tax credits. A portion
of the costs for supervisory
or managerial staff could
also qualify. The costs for
administrative support staff
would most likely not qualify,
barring a few exceptions.
In terms of subcontractors,
normally 65% of subcontractor
costs would qualify, but
diff erent rules apply if the staff
provider is connected to the
36 www.manufacturingmanagement.co.uk
/2tjqcuK)
/1MVQWo1)
/www.manufacturingmanagement.co.uk