It is certainly in the best interest of the UK to bolster the manufacturing capabilities of UK companies, especially during turbulent times when international trading relationships are in a state of flux. Some people might be surprised to learn that the government is doing something to address the situation.
There is a system in place to provide tax credits for research and development work, which all businesses, especially small and medium-size enterprises (SMEs), should be aware of if they are developing manufacturing technology.
Here are a few guidelines:
The government has defined many criteria to establish eligibility for tax relief for expenditures related to R&D. A key concept is that the R&D project needs to advance overall knowledge or capability “through the resolution of scientific or technological uncertainty.” Stated simply, the government does not want you to just build a new factory. You have to be developing basic knowledge in a scientific field that solves an “uncertainty” in that field. Perhaps a good rule of thumb is that the knowledge gained has to be useful beyond your specific business. The whole industry could conceivably benefit with the resolution of that scientific uncertainty.
An example might help.
There are many SMEs that provide manufacturing services for niche electronic products used in defence or aerospace applications. It would be useful for the industry as a whole to be able to perform these manufacturing processes at a lower temperature, both to save energy and to protect sensitive components. If a company could develop a new solder material (used to make the electrical connections) that melts at a lower temperature, this would help the industry as a whole. So, research and development expenditures in this area might be eligible for an R&D tax credit. If they were just buying a new piece of equipment to be able to do more manufacturing, that would not qualify, since it doesn’t solve a pervasive technical challenge.
There are also requirements for documenting that a project is within the tax definition of R&D. This involves addressing each of the terms in the government’s definition – ‘project’, ‘advance in science or technology’, ‘uncertainty’, etc. This is actually not unlike a patent application, with requirements showing when and how the uncertainties were resolved, and why the knowledge was not obvious to competent professionals in the field. Also, the costs incurred must be on the list of eligible expenses. Some are obvious – R&D employee expenses, for example – but others (like utilities) need to be apportioned properly to clarify what specifically went to R&D.
There are many details to understand in the process of claiming a manufacturing R&D tax credit, so the best approach is to use experts who do this regularly understand the subtleties, and know the latest regulations.
Get in touch to learn how GovGrant can help maximise your return.
