Credit Where Credit’s Due – Food and Drink and R&D Relief

Despite the Research and Development (R&D) corporation tax relief scheme being around for a good number of years, the food and drink manufacturing sector continues to be one of the worst culprits for not making a claim.

Recently, the government has released guidelines aimed at reducing sugar intake by 20% in the next three years. This is just one ‘trigger’ which may prompt R&D work eligible for tax relief.

Other potential eligible activities, many of which directors sometimes view as routine operations include:

  • Creation of new flavour profiles/products
  • Improvements to existing flavour profiles/products
  • Reducing salt levels/calorie intake/preservatives within products
  • Incorporating new plant and machinery into production processes

Under the R&D tax relief scheme, eligible companies can claim an additional 130% corporation tax relief on qualifying expenditure, potentially going back two financial years. This relates to expenditure incurred on wages costs and materials conducting R&D work, as well as potential software, utilities and consultancy costs.

In simple numbers, a company with £100,000 of qualifying R&D expenditure (there is no minimum or maximum limit) can reduce its annual assessable corporation tax profits by £130,000. This gives rise to a £24,700 saving at a current 19% tax rate.  There is also relief available for loss-making companies by way of a repayable tax credit from HMRC.

My advice to food and drink manufactures would be to review your activities with an expert over a non-obligatory meeting to determine if you would be eligible to make a potential claim.

R&D Tax Credits – Are you like many others missing out?

The Research and Development (‘’R&D’’) tax credits legislation has been around for a number of years, but it is still estimated that a vast majority of eligible businesses are not making a claim.

Many businesses are unaware that their activities are R&D qualifying for tax purposes which can lead to significant corporation tax savings or cash repayable credits from H M Revenue and Customs. Such activities can include making bespoke products, product development and changes to manufacturing techniques and processes.

Tom Wilkinson, Associate Director of Blackburn-based accountancy firm Pierce, talked to the Chamber about the legislation. ‘’It is staggering how many eligible businesses there are out there who are not making a claim for R&D tax credits. Part of this is due to poor or non-existent professional advice, but a key factor is that of the awareness of the legislation with is much broader than many realise. I was speaking to a senior tax barrister just before the Christmas break who says HMRC believe some 87% of eligible businesses for R&D are not making a claim!’’

The R&D tax credits system means that companies can claim 230% tax relief on qualifying expenditure which can be attributed to directly to R&D activities, rather than a standard 100% relief. Such expenditure includes materials consumed in R&D and staffing time expended on R&D as well as software, consultancy and utilities costs incurred on qualifying activities. In numbers terms, an R&D spend of £50,000 would result in a company being able to reduce its profits chargeable to corporation tax by an additional £65,000 (£50,000 x 130% extra relief) saving corporation tax of £13,000 at the current UK company corporation tax rate of 20%. There is also relief available for loss-making businesses by way of a repayable tax credit from H M Revenue and Customs.

Tom added ‘Some people have suggested this is a sort of tax-avoidance scheme, which is not the case at all, in fact HMRC are encouraging the legislation and there are some 60 equivalent schemes worldwide. The legislation is there to encourage growth and innovation in the UK. Some of the types of companies I have done claims for include all sorts of manufacturing companies, engineering, food and drink, technological and even construction. Whilst many businesses qualifying activities can be clearly evident, it is surprising how many businesses are undertaking tax-qualifying R&D work without realising it. I recall last year going to see a client about a completely separate matter, a business restructure project, when we started discussing activities on the shop floor and it was evident some of the work being undertaken was R&D qualifying and a subsequent claim was successfully made’’

‘’My advice to businesses who believe they potentially qualify for R&D would be to have a think about what their key business technical challenges have been in the past two or three years. You can potentially go back two previous financial years to make an R&D claim. Once you have considered such potential activities, please do feel free to engage with me on a no-obligation basis and we can discuss whether a potential claim could be made with HMRC. So far we have a 100% success rate and an excellent working relationship with the specialist units at HMRC and have saved local companies over £2.5m in the process’’.

Contact

Anyone interested in finding out more can call Tom Wilkinson on 01254 688100 or email at t.wilkinson@pierce.co.uk