How can R&D tax relief benefit businesses in climate-focused sectors?
More and more businesses across the UK are now putting strategies in place to ensure they are doing their part to combat the climate crisis.
Oftentimes, the implementation of measures to tackle carbon emissions requires companies to invest in the development or integration of technologies able to lower their emissions.
In many cases, the activities undertaken by these companies are likely to be eligible for R&D tax relief. Let’s find out more.
What is R&D tax relief?
The R&D tax relief is a government-funded program that provides financial assistance to businesses that spend money on research and development (R&D).
The incentive was developed by the UK Government to promote the growth of innovation within the UK and, in turn, stimulate the economy.
What is the benefit of R&D tax relief for climate-focussed sectors?
As stated by the International Monetary Fund [1], innovation will be critical to achieve the 2030 decarbonisations goals of the UK Government. In this context, the R&D tax relief can be a significant source of funds for businesses that are investing in the modification of internal processes, implementation of technologies to reduce their environmental impact, or for those that are developing new technologies that are new to the market.
The R&D tax relief allow these businesses to recover a portion of their costs related to staff time, software, materials, energy utilised in R&D projects, and also subcontracted work necessary for the accomplishment of these projects.
With two incentives, one designed for Small and Medium Enterprises (SME) and the other for larger organisations or SMEs receiving grant funding (RDEC), the opportunity to receive a Corporation Tax reduction or a cash injection expands to businesses of all sizes!
Which sectors can benefit?
The number of climate-focussed sectors are growing year on year, with many sectors developing so rapidly that we are seeing new industries entering the market.
In the last decade alone, we’ve seen a drastic increase in growth of size and importance of the Renewable Energy, Sustainable Agriculture, Waste Management, and Manufacturing of Electric Vehicles.
Let’s explore how some of the industries that are facing the challenge of reducing their environmental impact can benefit from R&D tax relief.
Carbon intensive sector
The carbon intensive sector is a broad term used to incorporate industries involved in the production, use and capture of carbon.
Businesses within this sector are now heavily focussed on developing technologies to mitigate the amount of carbon produced during manufacturing processes and remove existing carbon dioxide from the atmosphere; these technologies are known as Industrial Processes Carbon Capture and Storage (CCS).
Companies involved in projects aimed to enable CCS technologies to capture higher percentages of CO2, or to scale these solutions, are likely to qualify for R&D tax relief, allowing them to recover a portion of their investments in R&D projects. The relief could also benefit those companies that are implementing carbon capture usage and storage (CCUS) solutions within their manufacturing processes to reduce emissions and produce low-carbon energy to replace fossil fuel as an energy source.
Energy
Since the passing of the Climate Change Act 2008 in the UK, the energy sector has been one of the leading influences in the country’s decarbonisation efforts.
Businesses under the energy sector are consistently developing and adopting new technologies and systems that enable the generation and distribution of energy to be done more efficiently, making them eligible for a Corporation Tax reduction, or a cash credit, through the R&D tax relief.
With the benefit received from the relief, businesses could see an increase in the funds available to allocate to R&D projects and a subsequent acceleration in the commercialisation of these innovative solutions.
Automotive and Transport
The impact of transport on the environment has been a hot topic since the 1950s when the first study was published by scientists who found that burning fossil fuels for transportation was a key factor in carbon emissions.
The decarbonisation of the Automotive and Transport sectors brings numerous technological challenges with it, such as issues with vehicle’s ranges, battery performance, and charging times. From an infrastructure point of view, further issues are represented by charging capacity of stations and lack of space for larger vehicles.
Companies involved in projects aimed to solve these issues and develop innovative solutions able to facilitate the electrification or decarbonisation of the Automotive and Transport sectors, are likely to be eligible under the R&D tax relief and receive a substantial benefit to boost their activities.
Data and Software: A real Life Example
One climate-focussed UK business in the data and software space which has benefitted from tax relief is Climate X.
Climate X has developed cutting edge software that helps organisations understand how physical risk related to climate change impacts them, the R&D for which qualified for tax relief.
The company’s software has been used by climate-focused businesses to understand all potential outcomes and quantify the financial impact of climate risks and opportunities for specific locations, properties, and infrastructure.
Climate X engaged Apogee for their R&D tax relief application; Apogee were able to identify all eligible activities and qualifying costs, enabling Climate X to recover everything they were entitled to with minimum involvement.
The relief they received was able to support the business’ growth, and helped fund further R&D.
That is what Climate X have said about the Apogee team;
“A great bunch of R&D specialists that quickly and efficiently helped us with our return.”
How to unlock the benefits of R&D tax relief
If you are a business that is developing new solutions or introducing technologies into internal processes to help combat climate change, you may be eligible for R&D tax relief.
The schemes are available to businesses of all sizes, regardless of industry, which undertake qualifying R&D activities.
If you’d like to find out if you could be eligible to benefit from R&D tax relief like Climate X, get in touch with Apogee for a free consultation on 07496 096 032 or via email at info@apogee.co.uk.
