£120,000 rebates – are you missing out?

What is an R&D tax credit? The definition of R&D states that you need to be 'seeking to achieve an advance in science or technology'. This can comprise seeking to create new technical knowledge, appreciable improvement and/or the development of new capabilities. You also need to be overcoming 'technological uncertainty' to qualify. The guidelines state: "Technological uncertainty exists when knowledge of whether something is scientifically possible or technologically feasible, or how to achieve it in practice, is not readily available or deducible by a competent professional working in the field." It is fair to say that this all-important caveat favours the interpretation significantly. Qualifying development within a manufacturing environment can involve characteristics of iterative testing, integration between legacy components, processes or systems, making something lighter, faster, more secure, cheaper to manufacture or stronger. A qualifying R&D theme for manufacturing companies could easily be a development project aimed at increasing throughput rates, without compromising quality. The case for your R&D claim does not need to rely on having a unique or 'industry first' end result. Instead, we need to assess the journey of how you got to your end result, not forgetting that failed projects can also qualify! How much money is available and how is this influenced by the size of my business? R&D tax relief is HMRC's largest single funding mechanism to SMEs. Prior to April 2011, a claim for an SME could result in a net cash benefit of 21% of the qualifying expenditure. After April 2011, this could be as high as 26%, rising again in 2012 to 31.25%. If your company qualifies under the Large Company scheme, the net cash benefit is around 8%. You need to be a limited or Plc incorporated company – sole traders and partnerships do not qualify. However, it is worth noting that an SME still has a claim to R&D tax credits if it is loss making. HMRC's stated average SME claim is £40,000. Given you can go back two years, plus your current financial year, that's a potential £120,000 for first-time claimants. The R&D tax credit is rising to 200% this year and 225% in 2012 – why? In his March 2011 budget, George Osborne stated he wanted to attract more companies back to Britain and stimulate the economy. The way forward is investment and encouraging innovation, echoed by the Dyson Report, and the changes in uplift percentages represent a bridge in achieving the overall increase in net cash benefit for companies. There's no such thing as a free lunch – what does the government get back? What strings are attached and is there an application cost? No strings. The government is investing in technology companies, plain and simple. When you look at any period in history where there has been financial turmoil, investment in R&D at an industrial level has fuelled the recovery. Qualifying criteria Do all SME manufacturers qualify for tax credits? Assuming the claimant meets the qualifying criteria, any firm can claim, regardless of its profits, turnover or losses. You mention that any business "innovating, improving, developing or adding value to products or manufacturing processes" can qualify – can you be more specific? And how do you measure innovation or added value in applicants? The phrases in the guidelines are vague in this respect, in order to make the scheme as flexible as possible for all industries and sectors. A key test is the judgment of a 'competent professional', mentioned earlier. This really means that it is vital that technologists assess the activities included in the R&D claim. Identifying the boundaries of the qualifying activities means understanding the R&D rules and the technology being developed, and the associated tax and accountancy aspects. That's why we advise engaging a specialist to prepare and maximise a claim. How is a successful claim paid? Am I obliged to invest the money in R&D fields? The money comes from HMRC as one lump sum and we usually find it is invested into areas of further development or staff costs. However, there are no restrictions on how the money is reinvested. How often can I apply for credits? Every year, for as long as the company undertakes scheme qualifying activity. What do I do next? How long does the application process take, both in terms of form filling and meetings with GGTC officials? From initial engagement, to HMRC claim pack submission and cash out, is usually three months. GGTC compiles the claim pack (technical report and financials) and ensures the maximum claim, leaving the client with the benefit. Is it a complex application process and do I need third party advice? The simple answer is 'yes'. We get involved, so companies can focus on (and ultimately reinvest in) their core activities – in this case, manufacturing. Act now GGTC specialises in identifying, preparing and maximising R&D tax credit claims for its clients, in accordance with HMRC's processes. GGTC is offering WM readers a free consultation and 10% discount* on the claim success fee. Simply call Todd McCully on 01727 738600 or email todd.mccully@ggtc.co.uk Injecting fresh funds Product innovation and R&D are at the heart of Luton-based Warden Plastics' business – design and production of injection moulded and extruded products, and pertinently the manufacturing and marketing of a Biomedia range, used in the waste treatment industry – so achieving tax credits for this work proved a welcome bonus. Yet until Warden Plastics was contacted by GGTC, they had no idea that tax relief or tax credits for R&D and innovation existed. With GGTC on board, and after careful preparation, claims were made for two major R&D projects – Biomedia, a filter media for the biological process used in sewage treatment plants, and a Balloon Stick used to display promotional balloons. GGTC carried out all the claim preparation work, with Warden supplying accounts and project information. Within six months of starting the claims process, Warden received a cheque for a five-figure sum. Managing director Mark Barrett comments: "GGTC were very good; their communication and feedback kept us up to speed. The information and support they gave us along the way was excellent. They are a very good partner." And he adds: "Our accountants are very good and very reputable, but GGTC are specifically geared up to deal with this sort of claim." Top tips for applications

1. Financial analysis: Accurate and concise financial analysis that is compliant with R&D claim standards
2. Technical analysis: Structured and in-depth reporting, undertaken by an equivalent competent professional, on projects that fall within the realms of R&D
3. Presentation: Claim compilation that will enable HMRC ease of claim assessment
4. Compliance: Understanding the DBIS guidelines and the rest of the CIRD manual to ensure the projects and sums claimed for fall within the prescribed parameters and are correct, from a tax and accountancy perspective
5. Boundaries: Correctly identifying the areas of projects that can be claimed for and where the technological uncertainty, and the work to rectify it, starts and ends.