What manufacturers should understand about R&D
It’s often easier to identify innovation with a new product, so it’s no surprise that many manufacturing companies are carrying out work that qualifies for research and development (R&D) tax credits. In fact, the manufacturing industry is one of the sectors making the highest number of claims overall. Businesses are making the most of R&D tax credits by using their rebate to build an even stronger business. Without an investment into R&D and continuous innovation, businesses could risk losing out to their competitors.
However, there are still many manufacturers that are unaware of this generous government incentive. Or, if they are aware, they may be failing to take full advantage of it. Some companies may be under-claiming due to misconceptions about the types of research and development activities that qualify. A common reason for this is business owners believe their activities carried out to develop new products and processes, or improve existing ones are regarded as routine and would hardly qualify to claim R&D tax credits.
This is where many business owners are missing out…
Your company does not have to be engaged in pure science to be conducting qualifying activities. If you have invested time, money and resource towards creating something innovative, or advancing and improving manufacturing designs, products or processes, then it’s likely you will qualify to receive R&D tax credits. Manufacturing activities do not have to necessarily ‘reinvent the wheel’. A company can be seeking to improve functionality, performance, reliability, quality or even cost reduction to count as R&D.
What manufacturing activities count as R&D?
Manufacturing covers a wide area of business activities and innovation exists across a broad spectrum of sub sectors. This includes, but isn’t limited to, food and beverage products, tobacco, wood manufacturing, publishing and printing, basic metals and fabricated metal products and other machinery and electrical equipment. According to HMRC’s guidance, an R&D project begins when work to resolve a scientific or technological uncertainty gets underway. Qualifying activities might involve:
– Design, construction, testing and trialling of prototypes
– Automation to improve manufacturing processes
– Research to reduce environmental impact
– Creation of new software
– Innovative use of new or alternative materials
A prime example could be a company seeking ways to reduce wastage by converting materials into new products and ultimately minimising waste sent to landfill. Other R&D efforts could involve embarking on making improvements to a production line by making it more efficient and reduce costs, while also avoiding sacrificing product quality. Such R&D might be driven by numerous factors like legislation, environmental aims or operational efficiency.
Explaining and supporting your claim
It’s also important for expenses like payroll, supplies and contracted research services to be tracked and well documented to support your claim. Prototypes, models and other materials used during experimentation could count as eligible supply costs that contribute to the calculations. Documents that are beneficial in supporting your claim might include project records/lab notes, innovation and design logs, or a record of results from testing trials.
However, if you were previously unaware of the scheme, then it’s probably likely you no longer have all the details to back your R&D from previous years. This isn’t a problem. Our friendly and specialist team at the Taxshop can organise a face-to-face meeting or call with you to get an idea of what eligible R&D your company conducted. We’ll work with you and then do the legwork in putting forward a rewarding claim on your behalf.
Seeking expert advice gives our clients confidence that their R&D tax credit application is thoroughly explained, supported and includes all the costs it should. It’s also worth noting that the R&D tax credit regulations allow eligible companies to “look back” two previous financial years for potential R&D credits that were never claimed, which are separate claims we can help you with.
If you would like to contact one of our R&D tax credit experts for free initial advice, get in touch to get started on receiving a no-obligation review of your claim.