Research and development isn’t always about dazzling scientific progress or blue sky thinking. It can involve something as straightforward as discovering a new way of doing something at work.

Yet as many as 75 per cent of businesses do not realise that if they undertake this kind of activity - and many do - they may well be entitled to R&D credits from the taxman.

If they qualify, they can recover up to 25 per cent of their costs back, or up to 33 per cent if they are making a loss. The refund is normally made either through a reduction in their corporation tax bill or as a cash reimbursement.

“It means that companies can reclaim substantial amounts of their spending” says James Ellis, who is CEO of Glasgow-based Harmoney Consulting, which specialises in helping clients to make claims.

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 “They can recover things like PAYE and subcontracting costs and it can add up to quite a lot. It’s quite a broad scheme, and businesses that qualify are typically in sectors such as manufacturing, engineering, construction, software and agriculture.”

Harmoney Consulting provides support by putting together a report for clients validating the claim and providing the necessary proof. This then goes forward to HM Revenue and Customs.

The scheme was launched in the year 2000 and is a sizeable one, with the UK Government currently investing £7 billion in it this year. It considers it good value for money as it helps to strengthen the economy.

“Without it, a lot of businesses wouldn’t be able to invest into technology or their own businesses by hiring staff. So it’s great that it’s there. And it’s a good deal for HMRC, as they get a return from increased tax receipts. For every pound they refund, they get something like £2.84 back.”

 

Some 80 per cent of the businesses Harmoney Consulting assist with this relief are in the engineering and construction sectors, he says. “This scheme doesn’t exist only to help people that wear white lab coats or send rockets to Mars.”

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It is Harmoney’s job to educate businesses about what kind of activity qualifies for the payment, he adds. It can then take them through the application and verification process.

“The first box that needs to be ticked is that according to the rules, there has to be a level of uncertainty on the project in question that needs to be resolved. The second box is that the company has to be developing a plan to overcome that uncertainty.”

He gives an example of just how far this can be removed from the traditional notion of blue sky research. “Take a scaffolding company, for example. You wouldn’t think it would be involved in R&D.

“But if you are working on a listed building, cliff edge,railway,tunnel you might be required to proceed in a way that is different to the process required for, say, a residential new build property. The fact you may not be able to tie the scaffold into the wall might require some extra thought or planning toward the design of the scaffolding system”.

“These are the sort of complications that would lead the company to qualify for the payment. And there are a million examples of businesses in other trades where there are challenges with design or plans that need expertise to overcome which could be rewarded by the government in this way.”

In reality, then, the R&D innovation does not need to be cutting edge or at the forefront of technology. Mr Ellis explains: “To be considered for the R&D relief by HMRC, you just need to be doing something for the first time in your business to either stay ahead of the curve or keep up with the competition.”

Other companies may even be doing the same thing, he says. “But if what you are doing has taken some consideration and planning/design and you have used your expertise, then with this scheme the taxman will look on that favourably and will reward that sort of activity.”

Unfortunately, he says, there has been a considerable amount of misinformation about the scheme and who stands to gain from it spread by some advisers.

“They are not being as professional as they should be. The whole reason that we exist as a company is because people have been told that they don’t qualify for the credit as their costs aren’t high enough to justify the specialist offering this misinformation to work on it. Likewise, there are companies that are convincing businesses that aren’t eligible for R&D Tax Relief to make a claim when they do not meet the criteria.

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“Some applicants are not being taken the full way through the process or just ignored and that’s a real problem in this industry because people are being misled.

“In fact, technically a one man business could qualify for this relief. The more they spend in this area, the more work they are doing and so the more money they are going to get back.”

The claim process, he adds, is straightforward. “People can actually do it themselves, however, HMRC advise that businesses use a specialist in this area, to ensure the exercise is carried out correctly. We have a client conversation and the technical narrative then goes to HMRC based on that conversation and the projects we have discussed.

“We go into a great level of detail and it takes us about six to eight weeks to build a report - we do all of the work in the background.

“We then follow up with another conversation and send the report to the client to review to make sure that they are comfortable with it before it is submitted to HMRC. The payout should then follow.

“The one thing we never do is to waste anyone’s time. We have never once told a client that we can get money back and not delivered on that.”

harmoneyconsulting.co.uk