R&D Tax Credits in Engineering
The R&D tax credits scheme allows businesses in the engineering industry to reduce corporate tax bills or get tax refunds based on a proportion of R&D expenditure.
What is the scheme?
The scheme can be used by any limited company liable for corporation tax in the UK and meets the necessary R&D criteria; it can even be used on unsuccessful projects. The work that qualifies for R&D tax relief must be part of a specific project which aims to make an advance in its field.
Who is the scheme for?
Are you an engineering business eligible for R&D Tax Relief? R&D activity in the engineering industry applies to:
- developing a new or changing a project or process that’s more efficient, robust, flexible or cheaper in price
- developing original prototypes
- integrating new materials to improve product performance and manufacturing processes
- automation within the manufacturing process
- processes to scale up production without compromising product quality
- combining technologies using technically challenging methods
Many businesses are not aware of this benefit, they can make use of to get cash back and help out their balance sheet. This can mean the difference between having capacity or not to employ additional technical staff who can specialise in this area and help win more work in the future.
Some businesses when learning of R&D tax credits, reassess R&D as an affordable option going forwards. The scheme applies to companies in both profit and loss making positions.
- Loss making: benefit received as an extension of losses, OR these losses can be exchanged for cash (most businesses prefer this). Benefit is up to 33% of qualifying expenditure.
- Profit making: benefit received as a reduction in future corporation tax, and/or a cash refund or corporation tax paid. Benefit is typically 26% of qualifying expenditure.
- Eligible cost categories: PAYE salaries, sub-contract costs, consumable/material costs, utility costs, software licences.
There is a retrospective element to the scheme, applicable to two prior trading years (2 years’ benefit received from initial claim), current, then future years.
LHP can help you make an R&D claim end to end via HMRC. Why not get in touch to see how we can help you.