Brexit Archives | R & D Tax Credits

Is R&D stagnating after a lack of funding?

After positive trends in R&D tax credit uptake, the signals are innovation is still being held back by a lack of funding.

Figures released last month have left those involved in research and development (R&D) in the UK worried. The growth of R&D spending has slowed dramatically in real terms since the Brexit vote two years amid uncertainty in the business community.

Historically, spending on R&D hovered around just 1.1% of GDP, despite the introduction of government incentives like R&D tax credits back in 2000. This ranked the UK a shocking 11^thin the EU for R&D spend as a share of GDP.

The trend, however, since then was that more businesses were benefitting from R&D tax credits, with the latest figures showing that spending on R&D by UK businesses rose by 4.9%.

However, adjusted for inflation, this equates to just 2.9% which is the smallest increase, in real terms, for several years. This is indicating that, while there is an upward trend, the curve is slowing, and UK businesses are becoming weary of investing in R&D.

The Government realise that the current climate does not lend itself to massive investment in research and development. But in order to compete on the global market, UK companies need to be investing in R&D. The budget 2018 saw the Government’s pledge to raise the total of R&D investment to 2.4% of GDP by 2027, while also investing an additional £1.6 billion in its modern industrial strategy.

And it is needed, demonstrated by the well-documented demise of the Bloodhound SSC project earlier this month, which saw a UK engineering company try to build a car that could reach more than 1,000mph. The company saw its dream scuppered after it went into administration, due to £25 million needed for the final stages of R&D failing to materialise.

What are R&D Tax Credits?

The UK Government is aware that companies like Bloodhound SSC need help to push the limits of both research and development. And it knows that Britain is world-renowned for being a force in innovation and research. However, innovation is not cheap, so back in 2000 they introduced R&D tax credits.

These tax credits were put in place to encourage innovation in UK companies, in order to ensure they can compete with the biggest global superpowers. A staggering £21.4bn has been claimed in tax relief since 2000, in the form of 240,000 claims R&D tax claims.

Paired with special funding, grants, and various other hand-outs, R&D tax credits now help businesses put money into experimentation, research and development, without having to worry about the cost of any losses. They work by either reducing a company’s liability to corporation tax or by making a direct payment to the company.

These tax credits can help companies of various sizes across different industries take on new innovations that can get new products onto the market, or re-invent existing products to make them more efficient.

Is the issue lack of knowledge?

One of the reasons the tax relief is not being claimed is due to the lack of education around the tax break. Experts within the industry believe it has been advertised by the government to UK SMEs poorly.

Many SME business owners are simply unaware of the tax relief, owing to lack of advertisement and promotion.

Some are underclaiming due to a lack of comprehensive understanding about some of the subtle details of the R&D guidelines. In addition to this, some SME owners believe R&D Tax Credits are only available for traditional research sectors.

Many SME owners that we have come across simply think it is too good to be true, and there must be a catch. This is leading to many companies missing out on this legitimate financial reward for their valuable investment within their industry.

Samantha Holloway, CEO of rdtaxcredit.org.uk, commented:

Our figures show that forty six per cent of small business innovators who don’t use government support simply didn’t know it was available in the first place.

R&D stagnating is down to many factors, but this is surely the first one to tackle. Educating business owners that help is out there to invest in research and development.

We would like to see an increase in awareness of R&D tax credits in particular, especially where a small business does not actually have a new-to-market product, but is simply depending on these tax credits to innovate in order to improve productivity.

In addition to this, companies need to better understand the implications of Brexit on R&D tax credits. After Brexit, the UK Government will be free from EU regulation in relation to a subsidy limit, meaning an EU cap will be potentially removed. If this is the case, our prediction is that R&D tax relief would be a massively important element of the UK’s R&D policy, particularly in relation to SMEs.

How can rdtaxcredit.org.uk help?

At rdtaxcredit.org.uk, we understand that beginning to think about claiming R&D Tax Credits may be a little daunting. We want to help you through the process, to ensure you receive the financial reward that the Government wants to give you. Especially in this current climate where every penny counts.

Our expert team of accountants are committed to working with you and your company to provide strategic R&D tax credit advice. We can review your claim and propose new techniques to ensure you claim the maximum amount you are entitled to.

We offer a friendly and professional approach to R&D Tax Credits which includes:

A free no obligation initial review.
100% success rate
30 day quick turnaround

We also provide extensive information on our website should you wish to research R&D Tax Credits in further detail. We have information relating to individual industries such as:

Audio and Visual
Building Technologies
Commercial Printing
Creative Digital and Media
Food and Beverage
Health
Manufacturing and Engineering
Marine
Motor Racing
Pharmaceutical
Software Development
Technology
Telecoms
Web Development

If you would like to contact one of our experts for free initial advice, complete the quick enquiry form to receive a no-obligation review of your R&D Tax Relief claim.

Will the Government incentive for research and development be affected after Brexit is invoked next March?

It seems to be the word on everyone’s lips – Brexit. And rightly so, as many companies are gearing up for a brand new world outside of the European Union after 29 March 2019.

Opinion is still split, but early indications are predicting a turbulent time for UK business. Data analysis by Magic Circle law firm, Clifford Chance, has suggested that automotive, agriculture, food and drink, and chemicals and plastic industries will be hit the hardest, with tariff and non-tariff costs reaching up to £27bn for exporters.

This means now, more than ever, companies need to be astute in regards to financial planning, including tax planning.

With this in mind, Brexit is an area we have been asked about a lot, as many companies are concerned that the R&D Tax Credits they have come to benefit from will be taken away, or reduced. Below, we discuss this matter and try to ease any fears.

Does the EU have anything to do with R&D Tax Credits?

R&D tax relief is a UK Government-run incentive, so on the face of it you would assume that the EU do not have any power in relation to the tax relief. However, R&D tax relief comprises of two separate schemes running parallel to one another.

The first is the RDEC, or the Research and Development Credit scheme, formerly known as the Large Companies Scheme. This scheme is aimed at larger companies, with more than 500 employees and a turnover more than €100 million (or a balance sheet more than €86 million).

The second is the SME scheme, which to the UK is far more lucrative than the RDEC scheme due to the amount of businesses that fall into this category. This scheme is regulated by the EU, operating under what is known as the State Aid rules.

State Aid legislation ensures that EU members do not assist companies over a certain amount, in order to avoid potentially distorting competition among member states. It is a cap that ensures no EU member obtains an unfair advantage by subsiding R&D tax relief more than an agreed amount.

After Brexit, the UK Government will be free from EU regulation in relation to a subsidy limit, meaning this cap will be potentially removed. If this is the case, our prediction is that R&D tax relief would be a massively important element of the UK’s R&D policy, particularly in relation to SMEs.

Will R&D Credits still exist after Brexit?

It is hard to talk in absolute certainties in relation to anything Brexit related, so we will tread carefully here.

However, from the impression we are receiving from the UK government, and going off past policies in relation to R&D, we can deduce a number of positives. Theresa May’s post-Brexit government has already recognised the importance of stimulating business in the UK through R&D grants. In fact, their own studies have suggested that £1 of R&D tax relief leads to £1.53 – £2.35 back in expenditure, stimulating the UK economy, whilst fuelling innovation.

The government also showed their willingness to support R&D tax relief in 2012 when it lifted the cap on payable tax credits. It also demonstrated a commitment to the tax relief in last year’s Autumn Statement when it increased the RDEC tax relief from 11% to 12% for qualifying expenditure incurred after 1 January 2018.

The most recent budget saw positive steps too, with the government committed to raising the total R&D investment to 2.4% of GDP by 2027, a reported extra £1.6bn.

So, from the general attitude towards R&D tax credits from the UK government, we can deduce that a post-Brexit UK will still see this government incentive thrive.

What can my business do before Brexit?

While we would like to know what a post-Brexit Britain looks like, none of us have a crystal ball. A lack of the details in relation to no-deal, hard and soft Brexit, can leave hard-working companies in the UK left in the dark a little in regards to what their next steps are.

Our advice is this – in the uncertainty of Brexit it is now more than ever companies need to be prudent with their tax relief efforts. We can predict with a fair amount of certainty that R&D tax credits will exist after 29 March 2019, meaning that companies should be thinking now about their tax relief.

We will believe the R&D tax funding system will remain healthy, with more and more businesses applying for relief – an average of £53,000 per claim.

How can rdtaxcredit.org.uk help?

At rdtaxcredit.org.uk, we understand that Brexit can be a minefield to even begin to think about. Add the idea of claiming R&D Tax Credits, and all seems a little daunting.

However, we want to help you through this process, to ensure you receive the financial reward that the UK Government wants to give you.

We offer a friendly and professional approach to R&D Tax Credits which includes:

A free no obligation initial review.
100% success rate
30 day quick turnaround

If you would like to contact one of our experts for free initial advice, complete the quick enquiry form to receive a no-obligation review of your R & D Tax Relief claim.

Posts

Is R&D stagnating after a lack of funding?

How will Brexit affect R&D Tax Credits?