As they begin to emerge from lockdown, companies should consider the activities that
their employees and contractors will be carrying out to identify innovative
projects that would qualify for R&D tax relief. Companies will also need to
consider the impact of any government support measures on their R&D tax
Profitable SMEs can recover up to 43.7% and loss-making SMEs are able to recover up to 33.35% of qualifying expenditure on their R&D activities. This makes R&D tax relief a valuable source of funding. For example, a profit-making company incurring £100,000 of qualifying expenditure could receive £43,700 of tax savings and a loss-making company could receive a repayment of £33,350.
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Property and construction is a diverse and innovative sector, making advances in building technology and methodologies in response to the ever increasing demands of regulation, sustainability and environmental performance.
Innovative building solutions can include, for example:
UK manufacturing is an enormously innovative sector, making advances in manufacturing processes and products in response to the ever increasing market demands from a vast array of industry sectors including automotive, aerospace, rail and technology.
Innovative manufacturing solutions can include, for example:
Government support for UK companies affected by the COVID-19 pandemic includes the support for employees through the furlough scheme and the Coronavirus Business Interruption Loan Scheme (CBILS). Both may have an impact on a company’s R&D tax relief claim.
Employee salaries generally form a large part of the expenditure that qualifies for R&D tax relief. COVID-19 government support through the furlough scheme will have an impact on the way in which the qualifying expenditure is calculated and the availability of the SME R&D tax relief.
Therefore, careful record keeping and calculation of qualifying employee R&D activity is important in making a valid R&D claim.
The CBILS and innovation grant funding are considered to be state aid and restrictions apply to the amount of state aid that can be received by a company in relation to its R&D projects. SME R&D tax relief is sufficiently generous that it is also a form of state aid, so the restrictions potentially apply to companies who have utilised this funding. As a result SME R&D tax relief may then not be available.
If affected, the company could claim relief under the R&D Expenditure Credit (RDEC) scheme, however, subcontractor expenditure, which is prevalent in the construction and manufacturing industry, may not qualify for relief.
The rules are complex and so any company considering whether it is able to claim R&D tax relief should obtain advice from a tax professional.
Read more on SME R&D tax relief and what new funds are available to innovative companies during COVID-19.
If you are in the property and construction or manufacturing industry and wish to explore a potential claim for relief please contact us.
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