All aboard for R&D tax credits in 2020
NOW the Brexit bus has finally left the station, businesses here can emerge from years of uncertainty and plan for the future.
Like it or loathe it, Boris Johnston and his Conservative party are still getting Brexit done, but what also emerged from their election manifesto has the power to transform businesses, both large and small, right across the north.
A root and branch overhaul of the tax system isn’t on the horizon, but we do welcome a pledge to increase Research & Development Expenditure Credit (RDEC ) from 12 per cent to 13 per cent for larger businesses who have more than 500 employees, €100m turnover and €86m on their balance sheet.
Support is also there for SMEs who can claim up to 33 per cent for every £1 spent in R&D activities. Currently claims from SMEs account for 82 per cent of the north’s claims.
We could be talking about tens of thousands of pounds in tax benefits which would certainly help companies of any size further invest in growth, sustainability and innovation.
Support for innovation continues to be a government priority as underlined by the incremental increases in the rate since 2015 when it stood at 10 per cent for large companies.
In addition, a review of the definition of R&D to include areas such as cloud computing and data will be of great interest to the north’s burgeoning tech sector, which currently supports almost 10,000 jobs. These areas don’t necessarily scream R&D activity, but in many ways the associated costs with them can act as a barrier to innovation.
According to the Department for International Trade, Belfast is the number one destination in the world for fintech development as well as a leading city in Europe for new software innovation.
There are many areas that can count as qualifying R&D in the tech sector including AI, Internet of Things inter-operability, interfacing new technology with legacy platforms, quantum computing and building future ready cyber security.
A total of £75 million was paid out to businesses in Northern Ireland in R&D tax credits during 2017-18. To put the level of claims into perspective, HMRC figures showed that companies here claimed just 1.7 per cent of the total monetary funds paid out across the UK, representing just 2.7 per-cent of all claims.
So, if government support for innovation is a priority, why are more businesses not claiming a slice of the millions that have been set aside?
In my view, the key reasons are; a lack of awareness of the research and development incentive’s existence and gaps in understanding of what qualifies as R&D activity. It also requires a level of technical expertise to identify what is and what is not R&D.
But companies of all sizes should be exhausting the various ways to safeguard optimum benefit and ensure processes are in place to capture this.
Whether or not you are preparing a claim, every company regardless of size should be using a R&D tax specialist. There is simply too much money at stake not to use experienced specialists.
With the Brexit bus opening up new trade routes, R&D tax credits will be vital in 2020 for companies preparing for a period of growth outside the EU. All aboard!
:: Tom Verner (email@example.com) is group managing director at Momentum R&D