6TH AUGUST, 2019

Quick Guide To R&D Tax Reliefs In Engineering

Engineering is the mainstay of global development, and UK engineering in particular is a fast-paced sector with exciting and diverse opportunities for innovation. Indeed, companies involved in all aspects of engineering are continually making investments in research and development (R&D) to fill gaps in technology and solve a massive range of complex problems.

The UK has proudly lead the way during the last several decades in particular, in everything from aerospace and motorsport to pharmaceutical and mechanical engineering and more. It’s a sector that offers employment for large numbers of people in this country across multi-disciplinary, multi-site, multi-cultural teams.

With the world’s population growing and people expecting the greenest cars, most efficient ways of working and safer, faster transport networks, engineers are essential for building and maintaining the very bedrock of civilised society.

What fields does UK engineering cover?

As mentioned, the engineering sector covers a vast range of disciplines, including aerospace, biochemical, civil, military, marine, electrical, railway and software engineering just to name a few. With around 1.7 million people being employed in the UK engineering sector, it’s hardly surprising that it provides a huge amount of revenue to the country’s economy - around half a trillion pounds every year in fact.

R&D is vital to every sector within engineering as so much of the industry is about developing new products, next generation medical solutions and cutting edge infrastructure. Additionally, technology that has been around for a while will always need engineering commitment to upgrade and maintain it, and processes to be renewed and streamlined.

What does R&D mean for engineering?

If we look a little bit closer, it’s easy to determine that R&D occurs during pretty much every part of an engineering project. During a project’s early stages, once technical goals have been defined, R&D could involve for example the identification of the risks, benefits and feasibility studies required to see the work through. When it comes to development, R&D is very likely to be required in the design work (both digital and physical), as well as the building process and ongoing analysis. Large scale projects are commonplace when it comes to engineering with a large amount of effort going into computer modelling and software development to create various designs and solutions. In some areas of the industry, there can also be substantial time and resource spent on building prototypes and carrying out product tests too. All of this designing and testing work will help to manage the risks involved with the project and is especially vital in R&D projects, where the outcome could potentially be uncertain. Indeed, even once the project is complete, further technical testing, patches, adjustments, remedial work and ongoing maintenance could be needed which would also come under the umbrella of R&D.

What’s available for engineering firms in terms of R&D Tax Credits?

R&D Tax Credits have been in existence since the year 2000 for companies large and small, and offer vital financial support across engineering as well as many other UK industries. They are essentially a government-back tax incentive which allows companies to claim back some of their corporation tax, either as a rebate or as a lump sum, to cover R&D costs.

The idea behind R&D Tax Credits is that they boost innovation as well as encourage economic growth, which in turn helps the UK to compete globally. In fact, R&D Tax Credits are estimated to have contributed as much as £8.1 billion to the UK economy in 2017 according to HMRC’s most recent statistics.

What are the two types of R&D tax relief schemes currently in existence?

Depending on your business size and type, there are two different R&D schemes on offer: the RDEC scheme and the SME scheme.

The SME scheme is designed for businesses with 500 employees or less. Companies using this scheme should also not have any more than €86 million in gross assets or make over €100 million in turnover. The RDEC scheme on the other hand is similar but is aimed at companies where the SME criteria will not be met (generally speaking these are much larger organisations). However, the RDEC scheme can also apply to companies that are not able to take advantage of the SME scheme for other reasons, for example if they have received certain types of grant. Although there can be quite some time and effort involved in making the application for support, a successful claim can have a hugely positive effect on both the project and the business in general.

Aside from the obviously very helpful cash injection, claiming R&D Tax Credits can help to enable a strong R&D culture within your company. By making R&D an important element of your decision-making processes, it puts you in good stead to offer a highly stimulating workplace for staff, calculate your risks and make more informed spending decisions.

Identifying qualifying costs for engineering R&D tax credit claims

R&D could be part of any project where a business is making attempts to resolve a particular technological or scientific uncertainty or to gain further knowledge and understanding of something specific in the field. However, even with R&D Tax Credits being applied to a very large and fluid number of project types, it’s still useful to understand what kind of engineering projects qualify for R&D tax credits especially if you’ve never made a claim before. This is where a chat with us at Tax Cloud is highly recommended, as we can discuss your innovation plans and guide you towards success in your R&D Tax Credits application.

Staff, subcontractors and engineering R&D tax credit claims

Subcontractor costs and employing extra full and part time staff can be a significant expense for engineering companies taking on innovative projects, and are likely to make up a large part of any claim for tax relief. This is because very specific or niche skillsets may be required and specialist equipment could be needed at points throughout the project’s duration. This can all be a big part of the R&D and something for which a tax credit claim could be made.

Get in touch with the experts

The highly trained team at Myriad Associates created our Tax Cloud calculator with the sole aim of making R&D tax claims simple. With separate arms for both accountants and businesses, it’s designed to help you see exactly how much you can claim quickly and easily.

Take a look at the portal today, use our contact form or call us on 0207 118 6045 to discuss your options and speak to one of our R&D tax credit experts. Our experienced team will be very pleased to help.

Barrie Dowsett, ACMA, GCMA
Author Barrie Dowsett, ACMA, GCMA CEO, Tax Cloud
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