An announcement from India’s largest car manufacturer in early December 2013 highlighted the R&D friendly environment that is being fostered in the UK.

Tata Motors confirmed it would be investing £30 million in a new British innovation centre. They will partner with Jaguar Land Rover and Warwick University’s Warwick Manufacturing Group to develop the £100 million National Automotive Innovation Campus in Coventry.

The centre will open in 2016 and house around 1,000 world-class engineers.

The UK: an attractive place for R&D

Since the year 2000 the UK government has been working hard to encourage innovation, research and development through schemes such as R&D tax credits and more recently ‘above the line’ and Patent Box. The idea is to attract and retain innovative businesses and create jobs to develop the UK economy.

The effort is paying off as the UK is developing the desired reputation. Commenting in the press release Dr Tim Leverton, Tata Motors’ Head of Advanced Engineering and Product Development, said:

“…we see the UK as a global hub for innovative and low carbon automotive technologies…”

Engineering firms benefit from R&D tax credits

Although open to companies in any industry that can demonstrate innovation, R&D tax credits are particularly relevant to practitioners in the hard sciences such as engineering firms, for whom research and development is a core activity.

The National Automotive Innovation Campus in Coventry will be focussed on green technologies and reducing CO2 emissions. But any engineering firm that is pushing the boundaries with their design work and testing processes is highly likely to benefit.

Significant tax benefits

For large companies (those turning over more than €100m, or employing more than 500 staff) the R&D tax credit can be worth 130%, so to put it in monetary terms, for each £100,000 of eligible costs, they could reduce the income on which Corporation Tax is paid by £30,000. Since April 2013 there has been the option for large companies to claim R&D tax credits via an ‘above the line’ credit. Owing to the size of their budgets large companies typically process significantly larger claims than the £40,000 average.

But SMEs account for the majority of claims each year, and for them the R&D tax credit can be worth 225%, meaning that for each £100,000 of qualifying costs they could reduce the income on which Corporation Tax is paid by £125,000.

Past, present and future

Engineering firms involved in challenging projects should undoubtedly have a conversation with an R&D tax specialist to explore the possibilities for themselves.

Getting a handle on R&D tax credits has the potential to help finance current projects. Because the credits can be claimed retrospectively over two accounting periods the benefit may be even greater than first apparent. Understanding the credits can also assist in planning future projects.

Thanks to government policy, there is lots of scope for assistance with research and development – but you have to reach out to claim it.

 

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