Research and Development (R&D) tax relief can transform the way your manufacturing business operates, by providing financial incentives for investing in innovation. For businesses keen to enhance their research and development to achieve growth, R&D tax credits are an invaluable way to inject cash into the organisation and address some of the challenges facing manufacturers today.
In this article, we discuss how R&D tax relief works, who is eligible, and how you can make the most of the scheme.
How Does R&D Tax Relief Work?
Developing new products or processes and improving current ones is fundamental to success in manufacturing. Businesses who doggedly stick with so-called tried-and-trusted techniques often find that they are overtaken by their competitors who can produce superior quality goods for a lower price and in a quicker time.
By investing in process improvements and innovation, eligible businesses can submit an R&D tax credit claim for a reduction in corporation tax or a cash payment. While R&D tax credits are available for a wide range of sectors, they are especially well-suited to the manufacturing industry because it invests heavily in innovation – particularly within SMEs. R&D tax relief is available for the last two accounting periods if you are claiming it for the first time.
Who Is Eligible For R&D Tax Relief?
To qualify for Research and Development tax credits, manufacturing businesses must:
- Be registered as a UK limited company that pays Corporation Tax (CT).
- Have conducted qualifying research and development and
- Have invested money in R&D projects.
Documented the costs and time associated with the R&D activities.
What Can You Apply For – In Plain English!
The process needs to be that you: -
- Looked for an advance in science and technology – including an improvement to, or expansion of, existing technology.
- Had to overcome uncertainty.
- How you tried to overcome this uncertainty.
- Could not be easily worked out by a professional in the field i.e., is not already proven/known.
And the projects do NOT have to be successful to include them!
How Can You Make The Most Of Your R&D Tax Relief?
While any cash payment or reduction in CT will benefit your business, R&D tax relief is most effectively used to combat some of the specific challenges facing the manufacturing industry. This includes, but is not limited to, investing in innovations that:
- Manage supply chain disruptions to reduce lead times and ensure that customers’ orders can be fulfilled quickly.
- Address labour shortages, thereby boosting productivity and securing your business’s place in its sector.
- Achieve greater operational efficiency to improve product margins and cut costs.
- Invest in green technology, to reduce demand on fossil fuels, reduce energy expenditure, and improve your reputation as a credible eco-friendly business.
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