A local tax specialist is urging major manufacturers across the Midlands to tap into a research and development scheme that is set for a radical overhaul.
From April next year, the government is introducing a new ‘above the line’ R&D Tax Credit for firms employing more than 500 staff, which will be available whether the company is making a profit or loss.
Steve Timmis, Director of Newcastle-under-Lyme and Shrewsbury-based DJH Accountants, believes the proposal – which businesses are being consulted on until 29 June – can provide a major boost to innovation across the regional economy.
“Larger firms are already a real driving force for technological development and investment in R&D, and this new ‘above the line’ tax credit will encourage even more businesses to take advantage of the funding on offer,” Steve Timmis said.
“Many loss-making manufacturers, especially those investing in the development of emerging technologies, haven’t been able to claim a tax reduction previously, as it was linked to a company’s profits and Corporation Tax bill. But under the new rules, they will now be able to place the sum invested in R&D ‘above the line’ and claim a repayable tax credit – basically this means that a firm’s R&D spend can help to increase company profits before tax.”
R&D Tax Credits are the government’s biggest incentive to kick-start innovation. The scheme currently provides around £1 billion research and development funding a year, of which approximately £700 million is set aside for large companies. Under the current rules, a firm’s spending on qualifying research and development can be claimed back as a deduction on its Corporation Tax bill, with SMEs able to claim back 225% of qualifying expenditure and large businesses able to recoup 130%. At the moment, however, only loss-making SMEs are eligible to a cash payment worth 25% of its R&D spend too.
Steve Timmis commented: “The tax credits can be claimed back against revenue costs, so staff wages, both direct employees and temporary workers sourced through agencies, are eligible. For most R&D projects, this tends to be one of the biggest expenses, due to the highly qualified or experienced nature of the staff required, so it really is an avenue worth exploring, especially once the new tax regime is in place next year.”
Businesses interested in sharing their views on the plans to introduce an ‘above the line’ Research and Development Tax Credit can make a submission through HM Treasury’s website www.hm-treasury.gov.uk.
With bases in Shropshire and Staffordshire, DJH provides a wide range of services to businesses and individuals across the Midlands, including accountancy, tax advice, business start-up support, personal tax advice, and wealth management. Founded in 1984, the company has built up an enviable reputation for providing timely, cost-effective, and professional financial and business advice, tailored to the needs of each client, from large multinational companies to rapidly expanding SMEs.