HMRC statistics indicate that 3,375 companies in the Materials Manufacturing and Fabrications industries made R&D Tax Credit claims worth over £185m for the 2017-2018 financial year.
The statistics above show that the average claim for a company within this industry is nearly £55,000! These funds are paid back to the company as cash or as a Corporation Tax reduction.
As of 2018, there were over 42,600 companies in the materials and fabrication sector, of which, only 8% applied for R&D Tax Relief. This means that up to 92% of companies (that could potentially make a claim), have not!
The advantage for companies in this sector, is that research and development is often a core activity, making a wide range of activities eligible for R&D Tax Relief.
The eligible R&D activities are not limited to, but include:
To go into a bit more detail:
Many of the activities described above require prototypes to be developed and tested before the final product is arrived at. In many cases, the cost of prototypes, if they are not sold, can be included in the claim. This is because they can be counted as consumable or transformable materials – prototypes are consumed by the development of the final product. Up to £0.33 for every £1.00 spent on eligible prototype costs can be recouped as part of an R&D Tax claim.
Researching, developing and refining a formulation usually has significant costs, some of which can be included in the R&D Tax claim. Examples include the purchase of materials, the cost of lab or factory (scale up) batches and subsequent internal or external testing. On top of this, the additional labour costs associated with factory trials can often be claimed, along with the labour costs of the core R&D staff. As with prototypes, the costs can only be claimed if the trial batches are not sold.
Developing novel and bespoke software solutions requires a significant amount of expertise, which is often not available internally. Costs associated with subcontracted software developers can be claimed under the SME scheme if they completed R&D under your guidance to deliver a solution. Qualifying subcontractor costs can be included at 65% of the cost to the business, which can make up a significant part of the claim. You can find a guide on eligible software development activities here.
Below are some real-world examples of companies within the sector that TBAT have helped:
A SME steel fabrications company received R&D Tax Relief for developing a new fabrication process to make safety walkways faster, safer, and cheaper.
A SME aluminium casting company have received R&D Tax relief for developing a unique high strength casting alloy for the aerospace industry which encompassed bespoke novel casting technologies, developing alloy powders for additive manufacturing, 3D alloy printed components, and specialist heat treatment trials.
A ceramics manufacturing company received RDEC Tax relief for a number of projects that included the redevelopment of their antiquated control system. Using modern hardware and software development, they were able to produce a bespoke state of the art integrated process control network. The company also had to develop a new automated ceramic processing technique to accurately reflect the visual effect created by an old artisanal technique, that was soon to become obsolete.
During this difficult time, receiving a cash injection or R&D Tax relief from a successful claim could be a lifeline for many companies in the industry.
Additionally, the turnaround time for a response from HMRC is not as long as you may think – in March 2020, HMRC were processing and responding to tax claims with a turnaround time of just 28 days from submission.
We’re here to help! Let us ease your pains as our team of expert Consultants identify your eligible R&D activities and business costs, understand the technical challenges and innovation within these activities, and prepare a technically robust and optimised claim.
Within R&D tax credit frameworks, there exist varying degrees of guidance, each with distinct purposes. These are ‘Meaning of Research & Development for Tax Purposes: guidelines’, 'CIRD Manual (Corporate Intangibles Research and Development)' and ‘Guidelines for Compliance’
There were some important announcements made regarding the future of the R&D tax credits schemes both in structure, operation and who can benefit as well as wider investment in R&D in specific sectors.
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