Electronics is one of the largest industries in the world – and almost every aspect of it has to deal with some form of near-continuous research and development (R&D) to survive. This can range from developing new hardware and computer systems, to improving DVD and Blu-Ray players, to creating innovative music devices such as mp3 players, to pioneering new video games and virtual reality systems, and much, much more.
The tax relief available to the Electronics Industry could be a well-needed financial gain for many businesses – yet companies are missing out due to a misunderstanding of the requirements and procedures involved.
The industry is classed as ‘Information and Communication’ by the Government, and already accounts for some 25% of the claims made under the R&D Tax Credit scheme. This is second only to the Manufacturing sector which accounted for around 30% of the claims made in the last year.
This is a huge level of R&D taking place in the industry when compared with the fact that it is paying just 10% of the overall Corporation Tax.
Electronics has seen a substantial increase in the amount of spending on research and development in the past few years. The amount spent in 2015 was £2.4 billion. This means that it accounts for some 11% of total research and development spending in the UK.
With the nature of the work being done, there are a variety of areas that businesses can potentially claim for under the R&D Tax Credit Scheme.
- Developing new software and / or hardware
- Improving functionality for existing software
- The creation of new tools that extend the function of existing software or operating systems
- The development of new operating systems
- Creating new programming languages
- Extensions to enhance existing database software
- Advancement with tools such as image processing, character recognition or other tools
- Substantiating new data management techniques
- Developing new ways to capture and process data
- Upgrading Software to run on new hardware
- Developing ways to integrate hardware and software platforms
For Electronics businesses, the R&D Tax Credit can be a great way to legitimately reduce your tax bill alongside other schemes.
The definition of Research and Development for the Tax Credit scheme focuses on the ability to create new, or improve existing systems, equipment or other areas of science and technology.
An important thing to remember with the current tax credit system is, that the project doesn’t necessarily have to be successful in order to qualify. As long as the research qualifies under the definitions in place, the Tax Credit can be claimed, regardless of the outcome of the project. This encourages companies to try for developments they have in mind, without fear of being financially penalised if it isn’t a success.
The list of what can be claimed for under the scheme is quite comprehensive, although it does stipulate that the costs must be relating directly to the research and development.
For example: If a staff member spends 50% of their time on the R&D project and the rest in other areas of the business, then the claim can only be made for the 50% that they work on the R&D.
Other areas that costs could be claimed for include:
- Staff working in ‘qualifying indirect activities’ (such as maintaining R&D equipment or administration of the project).
- Some subcontractor costs to a certain percentage and also externally provided workers.
- Cost of software purchased for the project specifically and anything developed for it (unless already claimed under the software development costs capital allowance scheme).
- Some consumables used on the project including light, heat and power
- Data and telecommunications costs for the project
The size of the company does have an impact in how much can be claimed – but the amount a company is eligible for can even be claimed even if the business doesn’t make a profit for the year in question. For small and medium enterprises, the refund can be as much as 33% of the qualifying costs.
Documentation does need to be kept to clearly show what the claim is based upon as HMRC will ask for evidence of the various expenses before making a payment.
Easy R&D are specialists in R&D Tax Credits and we can help to determine if your business is eligible to recoup some of the money it has outlaid on its research projects.
Our service involves checking the project and all associated paperwork to ensure it qualifies under the R&D Tax Credit scheme, and then helping the company with the claim.
As experts in tax credits, we could help you reduce your Corporation Tax payment.
Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516