R&D Tax Credits for the Architecture and Engineering Industry – Is your innovation being rewarded?
Although research and development tax credits have been available to businesses since 2000, many architectural and engineering companies are not aware that they could be eligible for this valuable tax credit, worth up 33.35p in the £1, says Phil Hartley, tax manager at accountancy firm Mitchell Charlesworth.
To qualify for R&D tax credits a company must have made an ‘advance in science and technology by overcoming a scientific or technological uncertainty to achieve this advance’.
Given the above definition, many companies think that they do not qualify for R&D tax credits; some are under the misconception that tax credits are restricted to white coat scientific research or believe that overcoming problems is part of their day to day job.
However, H M Revenue & Customs’ (HMRC) guidelines relating to R&D demonstrate that the tax credits are not restricted to this narrow audience. An advance in science and technology can include creating new processes, products or services, making appreciable improvements to existing ones and even using science and technology to duplicate existing processes, products and services in a new way. This can be applied to development work in design and engineering that involves overcoming difficult technological problems.
The key to filing a successful R&D claim is to show that the work the company has carried out has extended overall knowledge in a field of science and technology and that the uncertainty involved in the project could not be readily resolved by a competent professional in the industry or solutions to the uncertainty were not common knowledge in the industry.
Examples of areas where successful claims have been made include innovative design in relation to energy efficiencies or environmental impact, engineering design, product development, process development, new construction techniques, restoring a historical building using modern techniques, recreating historic techniques using modern equipment, unique problem solving strategies, and bespoke software development. In terms of the costs that qualify for R&D, the main cost will be a proportion of staff member’s salary, including national insurance contributions and employer’s pension contributions, that relates to R&D. Other costs that can be claimed for include third party contractor costs, materials used for prototypes and software used for R&D purposes.
For every £1 spent on R&D costs the company is entitled to an additional £1.30 as a deduction against trading profits. For a profit making company, this will equate to an additional 24.9p of tax credits for every £1 spent on R&D. For a loss making company, generally this will equate to a cash repayment of 33.35p for every £1 spent on R&D.
HMRC statistics released in September 2018 for the 2016/17 tax year so far show the average SME claim in the North West is £41,612 compared to the national average of £53,970.
If you have a December year end then there is still time to consider if your company has undertaken any R&D activities in the 2016 year end. A claim would need to be submitted by 31 December 2018 as otherwise you could miss out on a year’s worth of R&D tax credits.
We have experience of helping businesses in the architectural and engineering sectors to identify projects that are eligible for tax credits and make a successful claim.