Does your company qualify for Government tax assistance?

Much of the work you undertake to develop and grow your business can qualify for significant and timely Government tax credits/relief irrespective of the industry you are in.

Knowing if your company can benefit from the R&D tax credit scheme, and other government funding vehicles that “pay back” companies on investments already made, can provide the means to fund forward investment in sustained business expansion, resourcing & growth and add considerably to your company’s off balance sheet valuation and/or sale price. Only a relatively small percentage of eligible UK Ltd companies claim their annual entitlement to government tax credits and funding schemes. These schemes can deliver a timely and significant cash injection, supporting investment, competitiveness, growth & employment. For all companies then, a simple, clear understanding of “do I qualify and what is my potential £ benefit” is essential.

To ensure you are not missing out, Evolution CBS has partnered with HOW2 Business Solutions to offer a FREE, no obligation, assessment to see if your business can benefit from any of the following schemes. 

Background

The R&D tax credit/relief scheme is one of the largest Government funding mechanisms for business, and with average annual claim pay-outs by HRMC, who administer the scheme, running at £43,000 for a SME and £300,000 for a Large Company the fact that just over 12,000 of an estimated 150,000 qualifying companies claimed in the 2011/12 fiscal year, means c.90% of companies have not yet claimed their entitlement.

How does it work? The scheme allows companies to recover development costs invested in innovative product and manufacturing processes. Over £8.0bn has been given back to UK businesses since its inception. Company’s with under 500 employees & a turnover not exceeding €100 million fall under the SME Scheme; above that and you would claim under the Large Company regime. On average a SME can recover 25% of their invested qualifying development costs.

What activities qualify? The scope of qualifying R&D activity (or projects) for scheme purposes is broader than most companies think.  The regime states… “From projects seeking to achieve an advance in science and technology, to activities that make an appreciable improvement to an existing process, product, material, device or service through scientific or technological changes”. However, many companies get “stuck” at the words “advance in science & technology” and wrongly assume that if they don’t have an R&D Lab or employees in white coats, they don’t qualify.

This could not be further from the truth in that a UK Ltd company, trading for 12 months or more and employing PAYE staff &/or using 3rd party services, would probably stand to benefit if their activities included any of the following:
• Developing new products or regularly changing the way they make their products;
• Developing and improving manufacturing processes or services, or
• Appreciably improving products, materials or devices, including software, IT solutions or products.
• Undertaking testing, developing samples & prototypes 
• Employing staff with a requisite technical or scientific background 

It doesn’t have to be new or unique; a competitor may already do it – as long as the technical knowledge was not in the public domain at the time of the development. You do not have to re-invent the wheel to benefit from the scheme; installing a bespoke IT system or process that streamlines daily operations and optimises efficiency could potentially qualify. A company can also claim against cancelled or failed project investment costs.

What’s it worth? As a company can claim back 2 financial years of qualifying investment and then, for their current financial year, the scheme can provide a timely cash injection of £129k for SME’s and £900K for large companies if working to average HMRC annual claim values. Loss making companies can claim as a cash credit or offset against future profits. This all makes the benefit of a scheme that usually pays out within 42 days of submission even more attractive.

As a simple example: A company has invested £80K in qualifying R&D activity, made up of staff or subcontractors working on the qualifying project plus relevant materials, utility or prototype-testing-sample costs. This figure is then “enhanced” by 125% for scheme purposes to create a £100k of “qualifying expenditure”. Assuming corporation tax at the small business rate of 20%, this would produce a R&D tax credit payback of £20,000. In other words, the company would have just reduced its actual investment in the project from £80,000 to £60,000 – a 25% reduction on the actual £ R&D investment.

Unlike a grant, the payback does not have to be accounted for; most companies reinvest the credit into future innovation, equipment/systems & qualified staff – key to establishing a sustainable, and often global, competitive position.

2 additional company schemes form the “trinity” of government funding & rewards to business, all 3 often go hand in hand enabling a company to benefit by tens of £££££’s.

The Patent Box Scheme gives companies the opportunity to halve their corporation tax bill. An EU initiative introduced by the UK Government in April 2013, Patent Box is also administered by HMRC. The scheme aims to create a competitive tax environment for companies to develop and exploit their Intellectual Property (IP) and patents in the UK, supporting business investment and growth.

What’s it worth? Under the scheme, profits from the sales of patented products or processes are taxed at 10%; even if the patented element of the product or process is minor 100% of income arising from the product should qualify. E.g. if the only patented element on a new car is a headlight, profits on the total sale price of the car would be taxed at the 10% rate. As you can still claim under the R&D scheme, you would benefit from “double” tax relief.

Eligibility? Any UK Company liable to corporation tax, generating an income (worldwide) and profit from product and/or process patents granted in the UK or EU.  Patent Box is not sector specific but the company must own or exclusively license in or out the patent. Profits generated in a patent pending period can qualify for the 10% corporation tax rate as the reduction is realised following Patent Grant; however HMRC require the company to elect into the scheme in advance of the patent being granted.

Innovation-tax harvesting: Companies should now be actively looking to exploit their IP, especially if they have active new product development programmes or industry unique or innovative manufacturing processes. It is recommended that companies consider undertaking a product and/or process innovation and IP audit to evaluate and identify patentable product and/or process opportunities within their business for the purposes of engineering, managing and fast tracking a UK patent application at a cost effective rate with the objective of substantially reducing their corporation tax liability. Harvesting existing IP or potential innovations becomes even more attractive in the context that patented income is taxed at 10% for every year of the patents life (20 years) for as long as the scheme exists.

The 3rd scheme many companies can benefit from is Capital Allowances.  Whilst most companies already benefit from Capital Allowances on investments in plant and machinery, the majority are still not claiming significant tax relief on property and environmental improvements, in that when you buy, lease or improve a commercial property, you can offset some of that expenditure for tax purposes. A company can also benefit from historic alterations, extensions and upgrades to their buildings unclaimed by the previous owners/tenants.

What properties qualify? There is no definitive list but some examples are Offices, Warehouse & Industrial Units, Retail Units, Leisure Facilities, Restaurants and Hotels.

From 1st April 2014 all commercial property transactions have to deal with Capital Allowances or risk financial loss to the buyer as well as for all future buyers and/or delaying the deal and potentially missing an opportunity to extract value on disposal for the seller. If ignored, the benefit of any Capital Allowances is NIL and lost for good.

What’s it worth? The amount of overall tax benefit from making a claim usually runs into tens, if not hundreds of thousands of pounds The tax saving varies depending on a number of factors but are typically between 5% and 40% of the money spent (depending upon the property type and your tax rate). Claiming can result in a cash rebate from HMRC, or a reduction in current and future tax bills, or both. There is no time bar on claiming for money spent to buy or build property. Specialist surveyors with Capital Allowance tax expertise visit your property to uncover and identify allowable items.

What can be claimed? Amongst the most commonly claimed for items are general power, lighting and heating systems, hot and cold water systems, air conditioning /ventilation systems, sanitary ware and fire alarms. However anything, which has a long-term benefit for the company’s trade may well be claimable.

Making a claim under any of these schemes: To maximise a company’s benefits under these schemes can be complex, dependent on the resource and/or specialised skills within the business; the financial calculations are the final output. First you need to understand what does and doesn’t qualify in order to fully maximise a claim and be able to clearly convey and validate the foundations for your claim to HMRC, according to scheme criteria.

As a specialist tax area, successful maximised claims are based on technological and scientific merits and are not something that can easily be performed solely by the company or by their accountants in isolation, unlike many other aspects of company tax.

For your free HOW2 eligibility assessment on any of the above schemes simply contact:
E: todd.mccully@how2uk.co.uk            T: 01992 505011              W: enquiries@how2uk.co.uk

HOW2 Business Solutions Ltd gives actionable advice to businesses to deliver more money and more sales with less tax and less risk. To start to enjoy the benefits, visit our website, www.how2uk.co.uk – membership is free.

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