Hundreds of thousands of pounds have been knocked off northern Lincolnshire firms’ tax bills by an under-used incentive scheme.
Chartered accountants RNS have worked alongside clients to maximize research and development tax relief.
Associate Partner Alex Douglas, said the savings made by local firms had been “significant.”
“The enhanced R&D expenditure RNS has identified over the past few years is more than £1.5-million which has saved companies in excess of £300,000 in tax,” he said.
Partner Robert Smith said one client in the engineering sector had particularly benefited.
“The tax benefits are currently more generous than they have ever been,” he said.
“The focus of the tax relief is not limited to high tech businesses. We’ve been successful in assisting businesses from across various sectors.
“What qualifies for research and development is much broader than many think.”
The incentive scheme was first introduced in April 2000 to incentivize businesses to invest in the future.
Until 1st April 2002, it was only available to small and medium enterprise firms but since then it has been extended to include large companies.
Alex said: “The scheme is designed to encourage innovation and excellence in UK companies and offers enhanced expenditure tax reliefs on qualifying R&D activities and associated costs for limited companies.
“Despite this, many companies, and we find this particularly the case in northern Lincolnshire, are unaware of their eligibility.
“R&D tax reliefs are among the most under claimed tax incentives currently available. Some firms are missing out on significant tax benefits.”
The main reason behind the widespread failure of companies taking advantage of the reliefs is the misconception regarding what actually constitutes ‘research and development’ for the purposes of the HMRC legislation, Mr Douglas said.
“Most company finance directors mistakenly believe that unless a scientist operating in a secret laboratory and dressed in a white lab coat is employed by the company, then R&D is not taking place.
“In actual fact, the legislative definition means that R&D activity is not restricted to ‘blue sky’ innovation but can be much more widely applied.”
HMRC will allow an extra 125% (30% for large companies) of identified costs to be written off against taxable profits.
Therefore if R&D expenditure of £100,000 is identified, HMRC will allow £225,000 to be included in the tax computation, giving an extra £125,000 of cost to be offset against taxable profits.
Alex said retrospective claims can also be made for the past two accounting periods which can result in a significant repayment of corporation tax.
He encouraged businesses not to miss out.
He also stressed that an R&D tax claim was a legitimate HMRC relief that is under-utilised by firms and their advisors, not a tax avoidance scheme that has seen celebrities receive adverse publicity recently.
Grimsby engineering firm Allied Protek Ltd, has been one beneficiary following advice from RNS partner Alex Douglas.
Its managing director Paul Wilson said: “We were made aware of the possibilities and it has made a big difference, reducing our tax liability and enabling us to instead invest in the business.”
Mike Powell at Batley Foundry Ltd said it too had taken advantage of the scheme after it was highlighted by RNS partner Rob Smith.
“The good tax savings that have been made have allowed us to invest more into plant and equipment to grow the business, increasing output and profitability.”
Alex or Robert can be contacted at RNS’ offices in Scunthorpe, Brigg or Barton on (01724) 842713.