Manufacturing and engineering

Manufacturing and engineering projects can qualify for R&D tax credits

Engineering and manufacturing projects

Typically those product and engineering or manufacturing process development projects that may qualify for research and development (R&D) tax relief include the following items:

  • Innovative product development using computer aided design tools;
  • Development of second generation or improved products;
  • Tooling and equipment fixture design and development;
  • Development of unique computer numerical control programmes;
  • Design of innovative programmable logic controllers;
  • Design of innovative manufacturing equipment;
  • Prototype development and three-dimensional solid modelling;
  • Development of computer models;
  • Design and development of cost-effective and innovative operational processes;
  • Integration of new materials to improve product performance and manufacturing processes;
  • Evaluation and determination of the most efficient flow of material;
  • Design and evaluation of process alternatives;
  • Design, construction, and testing of product prototypes;
  • Increase in ease of operation or suitability of manufactured products;
  • Development of processes that would meet new or changed regulatory requirements; or,
  • Streamlining of manufacturing processes through automation.

Activities that can be included in an R&D Tax Credit claim

In terms of qualifying a claim, the following activities would be considered eligible for inclusion in a claim for R&D tax credits:

  • Definition of technical objectives;
  • Identification of uncertainties;
  • Feasibility studies;
  • Review of new and competing technologies;
  • Formulation of project objectives;
  • Analysis, design and development of the technology/science;
  • Production of technical specifications or other documents to explain and support the R&D project and advancement;
  • Testing of the product, process or software;
  • Planning and management of project(s);
  • Monitoring and evaluation of outputs.

In addition, certain support activities may qualify for inclusion in the claim for R&D tax relief, such as:

  • Administration, finance, and human resource (HR) support services specifically essential to undertaking the defined R&D activities;
  • Learning and development (L&D) activities needed to support the R&D.

R&D expenditure claimable for manufacturing and engineering projects

Claims for relief can include on costs that have been funded from the Profit & Loss account.  In certain circumstances claims can include capitalised expenditure (providing that the assets purchased have been classified as Intangible Assets).  The main expenses that can be claimed are:

  • Staff costs (gross pay, employer’s NIC, employer’s pension contributions, and reimbursed expenses relating to R&D activities);
  • Agency workers (externally provided workers);
  • Subcontractors/freelancers;
  • Software license costs; and,
  • Consumable items (heat, light and power, and materials and equipment used in or transformed by the R&D process).

Staff costs that can be included in an R&D Tax Claim

It is not uncommon for an R&D team to consist of many managers and operatives from various parts of the business.  The R&D project team may include board level directors, the R&D Manager, Manufacturing staff, a Lead Developer, Engineering staff, Project Managers, Co-ordinators, Quality Control and Testing specialists, Operatives, and Cost Accountants, as well as members of the management support teams e.g. HR and L&D.

Evidence based technical report

By profiting from our specialist knowledge and significant Board level experience, our clients can be sure of maximising their R&D tax relief claim.  Amolo Group advisors identify, define and describe R&D tax relief claims that are several times higher than those claims prepared in-house or by generalist accountants. We produce evidence based company reports to support claims.

Why clients choose Amolo Group to advise them

  • No work starts until the client has formally engaged us in writing.
  • Our advisors adhere to the Code of Conduct and Practice of the Chartered Management Institute.
  • We appoint a supervising project manager to oversee the claim process and to liaise with the client on all aspects of the claim.
  • We appoint technical/industry specialists to the team that will process the claim.
  • We advise on all aspects of the R&D claim, from start to finish.
  • We make sure that HMRC will understand the details of the projects identified.
  • We adopt a right-first-time approach.
  • We can maximise R&D claims because our specialist advisors are able to identify, define and describe qualifying projects, and all eligible expenses.
  • Our advisors undertake literature searches of peer reviewed papers and work to a research methodology in order to validate the claims.
  • We produce detailed evidence based technical reports that clearly describe the projects. The inclusion of technical reports is essential in support of claims.
  • We prefer to work with the client’s own accountants to quantify and file the final claim.
  • No claim is submitted until the client signs of the technical report and the claim.
  • Our Claim Process is transparent and ensures that we are accountable. So every client always know where we are with their claim.
  • Our fees are payable only if the claim to HMRC for R&D tax credits is successful.

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R&D tax credits are a valuable government tax incentive

Almost all technological advances can be considered

Company directors should read this. Also, firms providing technical and consultancy services to companies should read this, as your services might be classed as “subcontracted research and development (R&D)” undertaken by your client, and thus make the client eligible to reclaim the subcontractor’s fees from HMRC.

R&D tax credits are a valuable government tax incentive created to repay companies, who used retained earnings trying to achieve something, which was technically challenging.

The goal of the HM Revenue & Customs R&D scheme is to reward past effort and to encourage future R&D spending, as R&D benefits industry and the UK economy. HMRC estimate that, in the long term, they gain £17 for every £1 spent on R&D tax credits today. R&D tax credits can reward either profitable companies or loss making companies by giving these companies a significant cash repayment.

Most companies qualify for the relief on R&D. Far more companies than many people think are eligible for the scheme. In fact, HMRC itself estimates that only 3% of eligible companies ever make a claim.

Your staff do not need to be in white laboratory coats undertaking cutting edge research to make a claim. This is a huge and probably the biggest misconception surrounding R&D tax credits. Also, remember that your accountant’s primary job is to audit your accounts and not to claim tax credits for you.

ELIGIBILITY

To be eligible for #tax #credits put simply you need to demonstrate that your company has taken a risk when you were faced with technical or scientific challenges that required a programme of effort to overcome.

Your company can make a claim if your staff tried to achieve any of the following:

Create

Creating new products, processes, software or services.

Improve

Making appreciable improvements to existing products, processes, software or services.

Duplicate

Use the sciences or technology to duplicate an existing product, process, software or service in way that improves its use or performance. For example, you may have a competitor and tried simply to better that competitor’s breakthrough.

A client of ours recently made a successful claim primarily because they adapted proprietary software in order to measure and monitor the performance of their plant. Another client installed energy saving equipment in a previously untried environment and, with the support of the supplier, modified the systems to ensure that the solution worked. Yet another client in the waste disposal and haulage business claimed ten of thousands because he introduced traffic management and driver management software leading to significant improvements in the performance of his vehicles. Many famous household brands have used our services with considerable success, even after their accountants categorically told them that there was no claim evident.

THE R&D JOURNEY

Think of a R&D project as a journey. Maybe it started when you were faced with scientific or technical challenges and you lost sleep because solutions were not readily identifiable by your technical team. Perhaps, your competitors were faced with similar challenges and they solved them. However, because the competitor is not willing to share the information and lose their competitive advantage, there is no publically available information which could be used by you. In these and similar circumstances, the work you undertake wrestling with the issues and trying to find solutions to these challenges can qualify you for research and development tax credits.

The project doesn’t even need to be successful. If you could not find a solution to these challenges and the project failed you can still make a claim. And you can claim retrospectively for the previous two financial years.

WHAT CAN I CLAIM FOR?

The expenses your company incurs in trying to overcome these scientific or technical challenges can form the basis of an R&D tax credit claim.

The following expenses may be included in calculating a claim:

  • Expenditure on staff including gross salaries, employers NIC and employers pension contributions;
  • Expenditure on agency workers;
  • Expenditure on subcontracted R&D activities.

HOW MUCH CAN I CLAIM?

The amount you can reclaim is dependent on whether you are an SME or a Large Company. The definitions used for R&D tax claims are specific to this scheme.

To qualify as an SME for R&D tax credit purposes your company must have fewer than 500 employees and one of the following: Either turnover of less than €100m or gross assets of less than €86m. A large company is one which breaches the above thresholds.

If we assume that you run a Loss making company spending £100,000 a year on R&D eligible costs we estimate that you could receive up to £33K as a cash payment from HMRC.

WHAT TO DO NEXT

Our aim is to make the claim process as simple and strightforward as possible. We work alongside you every step of the way, tailoring our service to your specific needs. The bespoke process we provide for you will be led by one of our board level directors, who will provide a professional, well-planned and efficient claim generation route.

We charge fees only if your claim is successful. So all the work done in making the claim is without any costs to you unless and until the claim is successful. There is no risk to you or to your company.

EMAIL:  stuart.morgan@amolo.co.uk OR mike.lowery@amolo.co.uk to arrange a FREE no obligation consultation.

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