“An absolute godsend“ was how one of our clients, a major player in the construction industry, described his company’s most recent R&D tax relief payment. It was January 2020, and they had just received a cash payment of around £500,000.
Now we know how 2020 panned out, the money that they - and many other businesses – received through the incentive was indeed a godsend. This is especially true in the construction sector, where the rising cost of raw materials and increasing legislation has put strain on profit margins. Then the last 12 months brought delays and site disruption as the pandemic swept across the country.
It’s far from just construction that’s affected - very few sectors have emerged unscathed from the past 12 months and, in short, the UK faces a huge cash flow challenge across many industries.
Which is why any failure to make the most of the support available seems like such a waste. According to the latest available data, around £3bn-worth of R&D claims have been made by SMEs so far, for the 2018-19 financial year, but we are confident many are failing to claim.
We believe that the under-claiming of R&D benefits takes place across most industries, but notably in software and IT, video game production, food and drink, manufacturing and construction/the built environment.
We have a globally competitive R&D relief scheme in the UK and, though it’s not always easy to access, we strongly urge companies to at least investigate whether they could make money back from it.
Some businesses use the money they get back for specific projects. For many, it simply goes straight back in as working capital. But they almost all have one thing in common: they regret the years when they weren’t making R&D claims and the money they’ve lost out on as a result.
The fact is, many businesses are taking part in far more qualifying R&D activity than they realise and are missing out on tax reliefs they could be claiming.
Most of our working lives, we are faced with challenges that require inventive solutions, and whilst R&D claims have been seen to relate solely to the innovative use of materials, claims are often more bespoke and can relate to solving problems on site with new processes or tackling challenges with technology. It’s often less about what you do and more about how you do it.
Carrying out a full audit of qualifying activity with a specialist could quickly unlock cash for the business, which could provide an uplift on existing qualifying activity and a much bigger tax deduction or cash refund. As an SME you’re entitled to a 130% uplift on any qualifying expenditure.
There is still scope for the scheme to grow, too: in the Budget, the Chancellor announced the launch of an R&D consultation, with a view to expanding the scope of the scheme. There are rumours that certain types of capital expenditure could be added to the list of qualifying activity, which would broaden the scope for even more businesses to claim money back.
Whether you need to improve cash flow to reinvest in your business for growth, to meet growing health and safety legislation or you simply want to make your business more fluid in a challenging economy, it’s worth exploring which Government support and reliefs you could be entitled to, or even where the reliefs you are claiming are not fully maximised.
There are questions that frequently come up from new and prospective clients, especially those who have hesitated about making a claim. Is it complicated? Is it relevant for my industry? Is it time-consuming? I tried it before and it didn’t lead to much.
Haines Watts will work very closely with your internal teams to make the process as smooth as possible. We will need co-operation from you as we build an understanding of your business and your qualifying activity, but we see this as a long-term relationship.
It can take an expert eye to appreciate the full potential of a claim, especially when it comes to R&D and it requires an experienced hand to ensure claims are robust and fully compliant. It’s often difficult to appreciate exactly how much of day-to-day work qualifies for R&D reliefs, but it can include everything from creating or experimenting with new materials, devising new energy-saving techniques, working with new technologies, overcoming technical problems, developing or improving tools and equipment, improving reliability, safety and performance… and much, much more.
One thing is certain: you could be sitting on far more cash than you realise.