Research & Development

Growth in manufacturing predicted

Tuesday, March 6th, 2012
Ian Thomas, Director, Broomfield & Alexander

Ian Thomas, Director, Broomfield & Alexander

Almost two-thirds of manufacturers in Wales responding to a national survey of the sector are predicting growth during 2012, according to a new report.

A third of the firms are anticipating growth of over 10% and, in a vote of confidence for the battered financial services sector, 61% say that, despite changes in lending and loan security policies following the banking crash, they feel they are receiving adequate support from their bank.

But the confidence respondents expressed in the survey was tempered by pleas for more support at local and national Government levels, which business say would make a major contribution to the success of the sector.

One Welsh respondent said: “Reintroduction of non repayable grants from the Welsh Government is very welcome and is the way forward, but they need to redress the support for exporting companies. It is currently virtually non existent.”

The MHA survey questioned 145 manufacturers across the UK about a range of issues affecting their businesses, with the responses from Wales broadly mirroring the national picture.

The report echoes encouraging findings from Markit’s purchasing managers’ index (PMI) a month ago, indicating strong growth in the manufacturing sector.

It’s also good to see confidence in banks returning. We have been saying for some while to our clients that if businesses go about raising funds in the right way, they stand a good chance of success. A strong business plan and pitch are more essential than ever in the current climate, and robust financials and a coherent business plan are a must – and some businesses just aren’t going in with those.

According to the report, over 80% of manufacturers in Wales (compared to 90% nationally) do not believe that the UK Government currently has a specific manufacturing strategy in place, and that more support for R&D expenditure in particular would be a real boost.

Three quarters of Welsh respondents revealed they were planning to spend between 1-2% upwards of their turnover on R&D – but 59% of them (against almost three quarters nationally) said that an immediate credit from Government for R&D expenditure would encourage them to invest more.

The survey supports a wider consensus across the industry that the sector remains neglected at policy level, while competitor economies such as Germany, Norway and Japan reap the benefits of continued investment in their industries.

The Government’s proposal to reduce the corporation tax rate to 10% for profits made on patented technologies from April 2013 will aid growth in the UK economy.

We know the Government has expressed a commitment to rebalancing the role of manufacturing in terms of contributing to GDP, but this survey shows immediate and extensive action is necessary to deliver this.

We would join our MHA partners in urging the Government to consider a wider national manufacturing strategy and increased awareness in the support currently available to support the sector and ensure it maintains its place as a leading player in the global economy.

To request a copy of the report, please click here

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on MHA and manufacturing, or simply register for our monthly newsletter.

Research & Development Tax Relief – Is your company claiming / maximising its entitlement?

Tuesday, February 14th, 2012
Paul Arnold, Director, Broomfield & Alexander

Paul Arnold, Director, Broomfield & Alexander

Many companies in South Wales are believed to have paid, and are continuing to pay, excessive amounts of tax because they are failing to claim (or maximise) a generous tax incentive which they are entitled to.

What is Research & Development (“R&D”) tax relief all about?

Ultimately, R&D tax relief is about reducing a company’s tax liability and thereby increasing the amount of cash in the company or in the hands of its shareholders. 

R&D tax relief enables companies to claim an enhanced tax deduction for all qualifying expenditure incurred.  The rate of this enhanced tax deduction has now increased to 200%, and is set to increase to 225% from next April.

For example, based on the rate to apply from next April:

£

Qualifying R&D expenditure                                                                       10,000

Enhanced R&D tax deduction                                                                     12,500

(in addition to the tax relief for the actual £10,000 spent)

Potential tax saving (i.e. increase in cash)                                             3,125

If these additional funds were withdrawn by the company’s shareholders they could receive nearly £2,500 of cash, after tax, simply as a result of the company submitting the R&D tax relief claim it is entitled to.

In addition, loss making SMEs (small and medium sized enterprises) are able to surrender tax losses for a tax free cash receipt, potentially equivalent to 25% of the R&D spend.  This can provide vital cash flow at a time it is most required.

For companies that exceed the SME limits (generally being those with 500 or more employees), a 30% enhanced tax deduction can be claimed.  SMEs in receipt of grants can also potentially claim under this scheme.

Qualifying costs

There are a wide range of costs that potentially qualify, including staffing costs, consumables (including power, fuel and water), computer software, contracted out activities and the use of agency workers to name but a few.

Understanding the wide range of costs is important, but where companies tend to derive the most value is when they correctly identify the full range of activities that qualify.  This is where claims can increase significantly, although it requires detailed knowledge of the R&D tax relief rules.

Qualifying activities

Companies which are:

  • investing resources to enhance their products or processes;
  • doing something that is innovative or unique; or
  • working on solving a problem that has never been solved before

could all potentially derive these cash benefits, as these types of activities are indicative of what may qualify as R&D for tax purposes.

Most companies are surprised to hear the range of activities that can qualify as R&D given the widely held perception that R&D relates only to high tech companies. 

Time limit to making R&D claims

As a company has two years from the end of its accounting period to submit or amend an R&D claim, it is important that previous activities are considered as well as current and future activities.

Recent changes/announcements to the schemes

In addition to the aforementioned rate increases, the £10,000 minimum R&D spend condition is set to be removed next April, greater relief may be available for the use of outside help and certain routine company projects may also qualify.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax and other business and financial topics, or simply register for our monthly newsletter.

Changes to R&D tax credits following Draft Finance Bill 2012

Tuesday, December 13th, 2011

 

Paul Arnold, Director, Broomfield & Alexander

Paul Arnold, Director, Broomfield & Alexander

Changes to the R&D tax credits regime announced in the recent Draft Finance Bill 2012 can be summarised as below:

SME scheme

Increase in the enhanced R&D tax deduction rate

  • The enhanced R&D tax deduction rate is set to increase to 125% from 1 April 2012.  Therefore, if £10,000 of qualifying R&D expenditure is incurred a company could claim tax relief of £22,500, providing a potential tax saving of in excess of £3,000.

Since 1 April 2011 the rate of the enhanced R&D tax deduction has been 100%, increasing from the previous rate of 75%.

Change in the amount of potential tax free cash

  • Loss making SMEs are able to surrender tax losses for a tax free cash receipt.  From 1 April 2012 the maximum cash receipt will be 24.75p for each pound spent on R&D.  Therefore, for expenditure of £10,000 a tax free cash receipt of £2,475 could be received.

This is a reduction from 25p in the pound which has applied since 1 April 2011, but still greater than the 24.5p that applied prior to this date.

Removal of the PAYE and NIC cap

  • Since the R&D tax relief scheme was first introduced claims for the tax free cash receipt have been restricted to the amount of the company’s PAYE and NIC liabilities.

However, for accounting periods ending on or after 1 April 2012 this condition will no longer apply.  Therefore, such claims will no longer be restricted by the company’s PAYE and NIC liabilities.

Going Concern

  • From 1 April 2012 a company will no longer be able to make a claim if it is in liquidation or administration.

SME and large company scheme

Removal of the £10,000 minimum spend requirement

  • For a company to make an R&D claim its annual qualifying spend must be at least £10,000.  However, this condition is set to be removed for accounting periods ending on or after 1 April 2012. A claim of any amount may then be made.

Expansion of the relief for the use of third party workers

  • Relief for the use of third party workers is to be expanded (i.e. Externally Provided Workers (“EPWs”).

This category of expenditure has always required a three way relationship.  For instance, a company pays an agency for the provision of staff, and the agency pays the individual directly.  If the agency paid the individual’s personal company, for instance, then this expenditure would not qualify (as there is more than a three way relationship).

However, for expenditure incurred on or after 1 April 2012 this condition is going to be relaxed, and relationships involving more than three parties (for instance, payments made to the individual’s personal company) will qualify.

If you are looking for more information on Research & Development tax credits, please contact Paul Arnold in our Tax team who would be happy to advise.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on R&D, Tax and other business and financial topics, or simply register for our monthly newsletter.

R&D unravelled…

Tuesday, July 26th, 2011
Paul Arnold, Director, Broomfield & Alexander

Paul Arnold, Director, Broomfield & Alexander

The Government has recently implemented further changes to the Research & Development (“R&D”) tax relief schemes, and further changes are set to take effect from 1 April 2012.  By way of background, we have addressed two key questions prior to outlining these changes:

1.       What qualifies as R&D for “tax purposes”

What qualifies as R&D for “tax purposes” is often significantly different from what people perceive to be R&D.  We have experience of submitting successful R&D claims for companies which initially thought their activities would not qualify.  We have assisted numerous companies in the submission of successful R&D claims, maximising their R&D entitlement by ensuring the entire range of activities (which can include routine work associated with the R&D project) and costs have been captured and claimed.

If you can answer yes to any of the following questions (or if you think the answer is yes) we suggest you speak to Paul Arnold, our main R&D specialist:

·         Are you investing resources to keep ahead of the game?

·         Are you doing something that is innovative or unique?

·         Are you working on solving a problem that has never been solved before (or the solution is not within the public domain)?

2.       What are the financial benefits of the R&D tax relief schemes

Companies which qualify as an SME (generally those companies with less than 500 employees) can now claim an enhanced tax deduction of 100%.  For example, if a company incurs £100,000 of R&D expenditure it would not only claim tax relief for the expenditure it incurred, but also an additional £100,000 of tax relief could be claimed (i.e. £200,000 in total).  This could reduce the company’s tax liability by an additional £26,000.

Should the SME be loss making it would have the option to surrender the tax losses relating to the R&D for a tax free cash receipt.  In the above example the company could surrender (in essence sell to HMRC) up to £200,000 of tax losses for a tax free cash receipt (i.e. cash in the bank!) of £25,000 (limited to the PAYE/NIC liabilities of ALL company employees).

There are a wide range of costs that could potentially qualify; including staffing costs (salary, employers’ NIC, employers’ pension contributions and reimbursed business expenses), consumables, power, fuel, water, computer software, contracted out activities, the use of agency staff and payments to the subjects of clinical trials.

Companies which do not qualify as an SME could claim under the large company scheme.  This entitles the company to claim a 30% enhanced tax deduction; although there is no option to surrender tax losses for the tax free cash receipt under this scheme.

Changes to the SME scheme from 1 April 2011

·         The enhanced tax deduction increased from 75% to 100%; and

·         The tax free cash receipt increased from 24.5p to 25p for each pound of R&D expenditure incurred.

Changes to take effect from 1 April 2012

·         The enhanced tax deduction for SMEs will increase to 125% (i.e. tax relief of £225,000 can be claimed for each £100,000 of R&D expenditure incurred, which could reduce the company’s tax liability by an additional £31,250);

·         The maximum tax free cash receipt for SMEs will remain unchanged at 25p for each pound of R&D expenditure incurred;

·         The tax free cash receipt will no longer be restricted by the company’s PAYE/NIC liabilities (i.e. it could be claimed even if the company has no PAYE and NIC liabilities);

·         The minimum spend requirement of £10,000 is to be abolished; and

·          Potentially greater relief for subcontractors undertaking routine work.

This is in addition to other recent developments which has made the relief more attractive.  This includes the change in HMRC’s stance on production activities and support functions, the IP condition being removed under the SME scheme, and the doubling of the SME limits to name but a few.

Paul Arnold can be contacted on paul.arnold@broomfield.co.uk in respect of any R&D queries that you may have.  In addition, with the ongoing Consultation process into the R&D scheme closing on the 2 September 2011 please contact Paul if you would like your views incorporated in our response to the Treasury.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on Tax, Research & Development and other business and financial topics, or simply register for our monthly newsletter.

Life Sciences

Friday, July 8th, 2011

Mark Jones talks about the services Broomfield & Alexander offer with regard to life science companies.