North West flying high in R&D tax relief league

The North West of England is one of the most innovative business areas in the UK, according to the latest figures.

The region sits third in a league table showing how much R&D tax relief their businesses are claiming, behind only the North and the West Midlands.

Almost 16 claims for R&D tax credits were made per 1,000 businesses in the North West in the latest year, well above the national average of 14.4 claims.

In sharp contrast, the South West — the region with the lowest proportion of businesses claiming for innovation — there were 11.5 claims per 1,000 companies, according to the analysis of official HMRC figures by innovation funding specialists Catax.

According to HMRC’s latest R&D tax credit figures, overall claims increased 16 per cent from the previous year — a sign of the progress that has been made in raising awareness of the tax break.

However, a Catax spokesman added: “There is always a lag with these figures, so they only cover up to March 2020, and we’ll need to wait another 12 months to see which regions were impacted the most by the pandemic and whether this momentum can be sustained.

“Ultimately, we need to see all UK regions building on this platform, as increased innovation can only be a positive thing for the UK at large, wherever the work is taking place.”

R&D tax relief was introduced by the government in 2000 to incentivise innovation, and results in either a reduction in a limited company’s corporation tax bill or a cash lump sum.

The relief is open to businesses from any industry and while there is a perception that the credits are just for young companies at the start of their development, that is certainly NOT the case.

And it is also worth stressing that your business may be entitled to a valuable R&D tax credit even if it doesn’t make a taxable profit.

The SME R&D relief currently available provides an enhanced deduction for tax purposes of an additional 130 per cent of qualifying revenue expenditure on qualifying R&D, in addition to the 100 per cent deduction already available for revenue expenditure under the normal tax rules.

Where the SME is loss making, alternatively, the SME may claim a tax credit up to 14.5 per cent of the surrenderable loss.

So, who is eligible for R&D tax relief under the present system? HMRC has set out some clear rules and guidelines.

It says your company can only claim for R&D tax relief if a “project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” – and not simply an “advance in its own state of knowledge or capability”.

The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.

And if your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.

It is not enough to say that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services if they don’t incorporate any advance in science or technology.

You can’t claim R&D tax relief under the SME Scheme if you’ve been subcontracted to do the work on behalf of somebody else.

It is also worth pointing out that your project doesn’t have to be a success to qualify for the relief. The fact that it failed can be used to show that its work was genuinely pioneering.

However, if your company receives a subsidy or grant for an R&D project, it may affect how much tax relief you can claim.

Gaining this support can be an important part of a business’ decision whether to make an investment that can see very real benefits for its future.

The requirements of the scheme are broad. It can include creating new products, processes or services or changing or modifying existing ones.

To discuss if your business may be eligible R&D tax relief contact me on 01772 430000.