Category: News

Future Plans for the R&D Scheme

During the Autumn Budget 2021, the government announced a number of proposed reforms to the R&D incentive, all with the key focus of further supporting innovation within the UK, whilst also targeting abuse and improving compliance. These reforms are intended to be included within the Finance Bill 2022-23, meaning they will likely take effect from April 2023.

Amendments to R&D Scheme to Extend and Further Support Innovation Within the UK

An area that has been widely discussed for change is the inclusion of data and cloud computing costs. There has long been an intention to align the scheme and its guidelines to accommodate and recognise the latest technology, incentivising modern methods of processing and analysing vast data sets essential for R&D. 

As such, the government confirmed that under the proposed changes, both the SME and RDEC relief will be extended to include these data and cloud computing costs. Specifically, license payments for datasets and cloud computing costs attributable to computation and data processing will be brought into the scope of qualifying expenditure for R&D.

HMRC also intend to further refocus the relief towards innovation within the UK. Under the current rules of the incentive, a company can recover costs for a subcontractor irrespective of whether the work is conducted in the UK or overseas. The proposed changes indicate that, where a company subcontracts the work to an external party, relief will only be eligible where the work has been performed in the UK. Similarly, only the costs on Externally Provided Workers (EPWs, or agency staff) that are paid through UK payroll will be recoverable. These principles are to be reviewed before any exact legislation takes effect (from April 2023).

Abuse and Compliance

This is a really key area of the reforms and could impact how R&D is claimed for in the future. It follows HMRC’s intention to cut down the estimated level of error and fraud in R&D applications, and as a result, ensure that the relief is only received by those with a genuine entitlement to it.

HMRC has already acted on this issue, allocating additional resource to the compliance of R&D applications. The further suggested changes will see all claims for R&D relief to be made digitally (both for a reduction in Corporation Tax payable and a tax credit), and will require far more detail on the application. This will involve greater depth on why a project meets the relevant criteria from HMRC (seeking an advance in science and technology through the resolution of technological uncertainty) and what expenditure is being claimed. 

Companies will also be expected to inform HMRC of their intention to make a claim in advance. Further, HMRC will require each claim to be endorsed by a named senior officer of the company and will need applications to provide details of any agent who has supported compiling the application.

These changes further highlight the importance of using a reputable R&D provider with a proven track record; reputable providers will already be meeting much or all of this criteria, by compiling a robust application that explains to HMRC why your business and your activities qualify for R&D relief. Whilst these changes are not set to be implemented immediately, it is worth having a discussion with an R&D expert to ensure your company is set up and ready for any changes to the R&D incentive. 

The agriculture sector is a critical asset for the UK economy and, now more than ever, the sector has an enormous opportunity for growth following the decision of the UK to leave the European Union.

In one of its latest publications, the Institute of Economic Affairs recommended and encouraged UK agricultural businesses to adopt a more positive approach towards new technologies and environmentally friendly practices to enhance the sector’s competitiveness. Agriculture research and development (R&D) is a crucial determinant of the sector productivity, which directly influences the food prices for us all.

Controversially, according to HRMC, the total amount of benefit from R&D tax credit applications for agricultural businesses accounts for less than 1% of all applications whilst the average relief is far lower than the national average.

On the other hand, agricultural businesses have historically sought and implemented innovative ways to enhance their productivity and profitability, which means there is a significant untapped opportunity to exploit the R&D incentive within the sector.

The question to ask at this point seems to be clear; why are agricultural businesses not taking full advantage of the relief?

Based on our experience, agricultural entrepreneurs and innovators are often unaware of the R&D tax credit incentive or simply misunderstand the concept of R&D from a tax context, strictly associating it with traditional tech and pharma developments.

One key cause for this is the guidelines provided by HMRC, which are extensive and complex for who are unfamiliar with the incentive. Therefore, business owners (experts in their respective field, but not in R&D tax) regularly struggle to understand the eligibility requirements, let alone compile a comprehensive report to submit to HMRC.

We highly recommend taking advantage of an R&D tax expert provider, such as Apogee Associates, to help your business taking full advantage of the relief, make the whole process simple and straightforward by compiling the report on your behalf, and ensure you access the most amount of relief net of fees.

You are likely to be eligible for R&D Tax Credits if you are conducting activities aiming to:

• Enhance the efficiency of water and energy consumption
• Improve processes efficiency through the use of technologically advanced machines
• Innovate using unique soil management techniques
• Reduce the use of natural resources without impacting yield
• Implement environmentally friendly countermeasures to disease, bugs and natural events
• Attempt to advance biotechnology
• Innovate through implementations of vertical farming processees 

If you want to know more about the incentive and see if it could apply to you, reach out to our team of experts; we will be happy to offer you free of charge consultation to introduce you to the R&D relief and explore how you could benefit!

HRMC recently released its latest R&D tax credit statistics, including all the applications submitted up to the year ending March 2020 under the Small and Medium Enterprise (SME) and large company (RDEC) incentives. The information included in the report offers an overview of the progress of the Government plan to reinforce the UK leadership in research and the innovation of the country’s economy and highlights opportunities for companies that haven’t benefited from the incentive yet.

COVID-19 has certainly slowed down the process and it will be necessary to wait for the following HMRC publication to evaluate the real impact of the pandemic on the R&D numbers.

However, the Government is confident in considering R&D as the key to reinventing many businesses in response to the COVID-19 crisis by embracing science and progress to build a brighter future for the nation.

The following table highlights some of the key points emerging from the report:

R&D tax credit relief overview

The total number of R&D applications for the year ending March 2020 is estimated to reach 85,900, registering an increase of 16% from the previous year. The numbers are expected to increase due to the retrospective nature of the incentive, which will enable companies to make an application for the year ending March 2020 until March 2022.

SME applications account for almost 89% of the total with an annual growth of 16%, reinforcing their role as the main drivers of general growth in applications submitted. A further breakdown of the SMEs numbers indicates that 38,050 claims are purely for a Corporation Tax liability deduction, whereas 38,175 include a payable tax credit.

Under the RDEC incentive, 4,370 large companies benefit from the relief and a further 5,305 SMEs qualified for the RDEC scheme as subcontractors.

Overall, the RDEC scheme has seen a growth of 12% compared to the previous year.

Number of claims for R&D tax credits by scheme, 2014-15 to 2019-20

Map of the R&D applications submitted by region

Despite the presence of numerous innovative companies, many regions show a low number of submitted applications, meaning that there is still a lack of awareness in these areas. On the contrary, companies in Greater  London seem to be familiar with the R&D tax relief showing the highest number of applications submitted in the country,    over 17,000 (20% of the total number) and around £2.3 million claimed (30% of the total amount). The Southeast shows the second-highest number of applications submitted (11% of the total), whereas the North East (slightly over 3% of the total) highlights an area that may not be fully benefitting from the scheme in comparison to the rest of the country.

Number of R&D tax credit claims by region of company registered address, 2019-20

R&D total amount claimed by sector

From the figure below there is no surprise in seeing the Information and Communication, Manufacturing and Professional, Scientific and Technical sectors showing the highest amount of R&D tax credit relief claimed. However, this should not discourage other sectors to explore the incentive. Based on our experiences, many companies miss the opportunity to recover the money invested in innovative projects because they misunderstand the concept of R&D, strictly associating it with white coats and scientific departments, while instead, the definition provided by HRMC is much broader than that.

Amount of R&D tax credits claimed by industry sector, 2019-20 (£ million)

Summary

Overall, the trend of growing investment in R&D remains uninterrupted despite the impact of the pandemic. The latest figures shine an optimistic light on the possibility of achieving the Government’s goal of reaching a total R&D expenditure of 2.4% of GDP by 2027. In this context SME’s play a key role, which is confirmed once again by the number of first applications submitted.

Number of first time applications by scheme, 2014-15 to 2018-19

If your company have recently had to overcome uncertainty in the attempt to develop a novel solution in the field, you are most likely eligible for the R&D tax credit relief.

As highlighted by the figures, many sectors are not taking full advantage of the incentive. Agricultural businesses for example, as well as many others, are constantly evolving and developing innovative solutions to enhance their competitiveness, the cost of which can be recovered!

Furthermore, the increasing number of applications submitted by SMEs will hopefully incentivise others to pursue the substantial cash injection for their businesses.

If you’re still unsure about the eligibility of your activities, get in touch with one member of our team of experts.

Apogee offers an initial, free-of-charge consultation with no further commitment. Our mission is to promote innovation and sustainability within the UK businesses and help them reach their Apogee!

 

The UK beer market contributes to 16.3% of the whole European market value, second only to Germany. Although many companies in the sector are investing in innovative brewing processes and the development of new products, only a handful are recovering everything available to them through the R&D tax credit incentive.

How is the UK beer market recovering after the pandemic?

It’s safe to say we like our beer! However, as reported to Mintel, Covid-19 heavily impacted beer sales due to the closure of pubs and restaurants. It is estimated the sector will not recover and reach the levels pre Covid-19 until 2024. In addition, the overall consumption of beer in the country is falling – mainly due to the spread of health-conscious attitudes amongst the British population. Consumers are increasingly oriented towards healthier options such as non-alcoholic and low-calorie products (likely in an effort to mitigate the beer belly). These are, in fact, two of the major trends shaping the market, alongside the rising desire for sustainably brewed beer. Particularly, consumers aged 18-24 are concerned about sustainability and tend to prefer sustainable brands over others when it comes to purchasing decisions.

R&D tax credits to implement a sustainable production 

In terms of sustainability, the consumption of water is one of the biggest issues related to the sector. Beer itself is primarily water, which, on average, accounts for 90% of the product’s composition. The consumption of water is not strictly related to the production process only, but also to washing and other operational-related activities involving the brewing process. Although water usage does not hugely impact the breweries’ costs, it does impact the environment, as water scarcity represents one of the major threats for the planet’s future. As such, many breweries in the UK are developing new mechanisms to reduce the consumption of water, and many of the costs associated with this innovation can be recovered under the R&D tax credit incentive – often resulting in a significant cash benefit to the business.

Increasing the use of renewable energy and recyclable packaging are two additional changes that must be implemented in order to make the production of beer a more sustainable process. Various major players within the beer market have started ‘move to zero’ plans, aiming to become powered by 100% renewable energy. Similarly, an increasing number of producers are switching towards recyclable packaging – incentivising the return of empty containers from consumers in order to reduce wastage. As with the reduction of water consumption, activities associates with the reduction of unsustainable energy usage and wastage using innovative technologies and processes can also be recovered under the R&D incentive; importantly, brewers can recover the cost of staff time, consumables (including some ingredient and utility costs) and subcontractors associated with such projects!

However, R&D is not limited to the above. In fact, the process of developing new beers, such as those with unique flavour or aroma profiles, or ever non-alcoholic, gluten free or low-calorie options can qualify as an R&D project.

If you are running a brewery and are wondering whether your activities qualify for R&D, get in touch with one of our experts. We’re always happy to have a quick exploratory chat!

If you want to explore whether your small, medium or large business is eligible for R&D tax credits, Apogee can help. The process can seem overwhelming, so to simplify things somewhat, here is an overview of the process we will guide you through.

Applications Compiled with Expertise

Every application benefits from the expertise of our small, highly knowledgeable team. In addition to retaining consistent points of contact throughout the process, you can feel assured that your application is being compiled, overseen and reviewed by qualified and experienced R&D tax credit specialists.

This means that we can offer our clients the best possible recovery, net of our fee, which will always be completely contingent on the success of your application. We can say that with so much confidence because we have successfully uplifted the outcomes for many existing applications that were originally submitted by leading R&D providers, plus many of the minor R&D providers as well. For this reason, we won’t ask you to lock yourself into an iron-clad contract with us. You’ll want to continue using our service because it’s the best around.

Invest in Quality Solutions for your Business with Apogee

We are proud to support small, medium and large businesses because we believe that eligible enterprises of all sizes should have full access to the funding they need to thrive and continue to make key contributions to innovation and development. If submitting an R&D application is likely to benefit your business, we guarantee that we will give you the support you need every step of the way.

Our Dedication to Sustainability

In addition to being fully committed to ensuring all areas of our business are operated in the most sustainable ways, we want to help our clients be more sustainable too. Therefore, for every application we process, we provide the resources for the planting of a brand-new grove of trees, and fund the protection of a significant area of rainforest. We only have one planet and we all need to make sure we’re doing our bit to protect it before it’s too late.

Our Values

Apogee was founded on one fundamental idea; that business can be and should be a powerful force for good in the world. We are a values-based business; our passion for fairness underpins our desire to operate as ethically as possible, setting us up to continue making a difference long into the future.

We operate on the belief that respect cannot simply be acquired. Instead, respect comes from the maintenance of the highest professional standards and a constant drive to do better; we subject every decision we make and action we take to the same high level of scrutiny that has allowed us to get to where we are right now. Perfection is unachievable, but we will never stop continuing to improve our approach to get as close as possible to that ideal state.

Connecting with Apogee

If you’re keen to find out more about what we do or how we could help, we’re eager to hear from you. We’ll start with an introductory call (completely free of course) during which we will work to understand your business and determine which activities will qualify for R&D tax credit support. There is no obligation to continue with your application after this call, but we’re confident that our expertise can help you to secure the investment your business deserves and is entitled to.

We’re passionate about our journey and we want you to join us. The road to innovation should always be an enjoyable one, which is precisely why we will ensure that you and your team have an excellent experience with us. We can’t wait to hear from you!