A version of this article appeared in The Manufacturer.
When it comes to funding for UK manufacturers, R&D tax relief is a trusted source for many firms. It delivers cash that goes towards building business resilience, hiring new talent, embarking on ambitious projects and developing new products. With serious supply chain issues in the wake of Brexit and the pandemic, R&D tax relief has been a rock for many UK manufacturing firms in turbulent times.
Yet R&D tax relief isn’t a form of funding that you can complacently rely on, year on year, without actively engaging with it. The incentive has been subject to a substantial change in the past year and now is the time to get familiar with these changes. HMRC has altered its policy, reinterpreting the legislation and we’re sharing these details with you to help protect you.
As a manufacturer, you need to be fully aware of these policy shifts and their potential impact. We know that you’ve also gone through a disruptive period. This means you really can’t afford to turn a blind eye to these developments. In fact, it’s a great opportunity to delve deeper into R&D policy developments and the effect this might have on this vital form of manufacturing funding.
Significant changes to R&D tax relief incentives
Under pressure from the Treasury to cut costs, HMRC has recently increased its focus on stamping out errors in R&D tax credit claims and even combatting R&D tax fraud. More generally we’re seeing HMRC proactively tightening its approach to R&D tax relief rules and guidelines.
Here are some of the outward signs of this increased focus on claim quality:
- 100 new compliance staff to its R&D unit.
- HMRC has challenged some SME R&D tax relief claims for customer-led projects, on the basis that customers are subsidising the underlying R&D.
- Introduction of the PAYE/NIC cap for SME payable tax credit claims.
- Updating the submission process that means any R&D tax relief claim must now be accompanied by a full CT600 and computation.
A largely unregulated R&D market
The R&D tax market is largely unregulated. Consequently, there is a marked increase in unregulated, spurious tax advisers offering businesses bad advice or poor-quality service. Unfortunately, this means that more businesses are finding themselves without support and guidance when they need it most. This includes facing difficult questions from HMRC alone as their adviser lacks the necessary skills to help them.
Despite all these changes to R&D tax relief, the opportunity to benefit is still there. UK manufacturing is highly advanced, and the sector is research and development intensive. These policy changes won’t cut eligible businesses out – that is, if they make the adjustments required.Peter Beavis MSci PhD, manufacturing sector specialist at ForrestBrown.
Sense checking your manufacturing R&D claim in 5 steps
As we’ve highlighted it’s important to take stock of your R&D tax relief position. Here are a few simple steps that we recommend you take:
Quality check your R&D adviser
You want an R&D adviser who is regulated by a professional body, such as the Chartered Institute of Taxation (CIOT). Some R&D advisers are unregulated, putting you and your claim at risk. ForrestBrown is a member of the CIOT and we also work in close partnership with HMRC.
In order to have a robust R&D tax relief claim, you want an adviser that can bring together expert tax advice and sector expertise. If your current adviser doesn’t offer this combination, then you should consider looking elsewhere. You want to avoid mistakes and valuable costs and activities being overlooked.
ForrestBrown has a team of sector specialists on staff who have decades of real-world experience in manufacturing, science and engineering. This allows them to work with you on a peer-to-peer level.
Know your contract
Take some time to review your R&D contract. Make sure you check the scope of work, in particular around whether enquiry support is included. Also, keep an eye out for restrictive tie-ins and termination clauses. Consider the proposed fee structure and don’t be afraid to question your adviser. Read more on R&D tax relief contracts.
Understand your R&D tax credit claim
Do you know precisely what you are claiming for and why?
With an increased emphasis on quality, HMRC now expects clear evidence and records to support an R&D tax credit claim. It’s up to you as a manufacturing firm to clearly define your specific project boundaries.
Be prepared for an HMRC R&D enquiry
An HMRC enquiry into your R&D tax relief claim can take a number of months to resolve. Your ‘competent professionals’ will need to speak to HMRC and therefore be fully prepared. These interviews can be detailed and time-consuming, and even nerve-wracking.
Without exception, where you engage ForrestBrown to prepare your R&D claim, our full R&D tax credit enquiry support service is at your disposal and included in the fee. This gives you direct support from our most experienced professionals: chartered tax advisers and accountants, tax lawyers, sector specialists and ex-HMRC inspectors.
Now is a good time to claim R&D tax relief with ForrestBrown
As we’ve highlighted, R&D tax relief policy is going through a period of significant change. Rishi Sunak launched the R&D tax reliefs consultation to explore how investment in innovation is supported or otherwise impacted by the R&D tax relief incentives.
ForrestBrown believes that ultimately this renewed attention is good news for businesses. R&D tax credits have become increasingly popular, and we think it’s right for the government to reconsider its approach and make needed adjustments.
As a manufacturing firm, we urge you to take the risk around R&D tax relief seriously. That might mean speaking to ForrestBrown and seeing how we can help sense check your claim. Now is the time that you need R&D tax relief the most. Make sure you’re working with the right adviser to make the most out of this powerful incentive.
ForrestBrown works with the government at the policy level to ensure our clients are prepared for any changes. R&D tax relief remains a powerful incentive for manufacturing firms – but the right advice makes all the difference. Speak to us today.