UK Manufacturing may be experiencing a “post-failure to Brexit” lull right now, but there are many areas where a manufacturing business can still look to boost its cash flow.
One of the often overlooked areas is a claim for Research and Development Tax Relief or R&D Tax Credits as they are more often referred to.
Whether you are the Original Equipment Manufacturer or part of the Supply Chain there is the prospect to claim. It’s a specialist area and the information in this article whilst accurate may not provide you with the full picture so please don’t take any action without speaking to a specialist beforehand.
There are two schemes:
The SME Scheme – for Small and Medium sized companies offers a repayable tax credit of up to 33.35% of the eligible spend for loss making companies and up to 24.7% of the eligible spend for profitable companies.
Research and Development Expenditure Credit – for companies not able to claim under the SME Scheme the expenditure credit is worth up to 9.72% of the eligible spend.
For there to be an allowable claim the Research and Development costs must have been incurred on a project for the company that is claiming.
How does the relationship between companies in the Supply Chain affect claims?
Quite simply there are different rules for Small and Large companies, there are also different rules for subcontractors and suppliers depending on the size of the companies as well! Confused? Perhaps some quick examples might help?
If the ultimate manufacturer in the Supply Chain is a Small Company, then it can claim for all of its own staff and for work subcontracted out to its immediate supply chain under the SME Scheme. If it buys in specific materials to develop a prototype then the cost of those materials can be included in the claim, provided they are consumed (cannot be used again) and the prototype is not sold commercially. A large company won’t be able to claim for any subcontracted R&D to its Supply Chain.
If a Supplier in the Supply Chain has been “subcontracted to” by a small company and they are charging “time and materials”, then they won’t be able to claim for any of their R&D costs, but the Small Company above them would be able to claim. If, however, the supplier has been subcontracted to by a large company on the same “time and materials” basis then the Supplier will be able to claim a less rewarding relief called the Research and Development Expenditure Credit (RDEC).
If the Supplier was subcontracted to and worked on a “fixed fee” basis, then regardless of the size of the customer, the supplier would have potential to claim for any R&D that it had performed provided it could be demonstrated that the company had taken significant financial risk.
If the Supplier in the supply chain is only supplying their products to the manufacturer, large or small, but has had to undertake its own Research and Development to deliver those products to a specific requirement and hasn’t been paid for it, and will only recoup their costs through the sale of the supplied product then the Supplier will be able to claim under the SME Scheme on their costs of development.
What does it mean for your business?
It doesn’t matter where you are in the supply chain, whether you are the end manufacturer, an Original Equipment Manufacturer or a specialist engineering firm at the very bottom of the supply chain, if you’ve been solving scientific or technical challenges you have been doing some Research and Development, all you then need to do is work out whether you can claim for it or the person above you!
If you’d like some help with that then we’d be very happy to talk to you, we are running our #FindOutInFifteen campaign, where if you visit https://calendly.com/cooden/discovery-website you can book a phone call with our Director, Simon Bulteel where in 15 minutes we reckon we can determine whether there is potential for you to make a claim and how we might be able to help you. Or you can visit the website and just send us a message at coodentaxconsulting.artemisdevserver.com