When you first start your engineering business, there are lots of costs involved and of course there are taxes to contend with. But there are legitimate ways that businesses can reduce the amount of tax that they have to pay or even get HMRC Tax back as a payment.
Small tax relief systems
There are several small tax relief systems that can all help ease the tax burden on the business and on individuals. While none amount to a serious amount of money, everyone is entitled to claim them and therefore both the employer and employee should make used of any tax relief HMRC offer.
For example, if you are a subscriber to the Institute of Civil Engineering, then you can claim tax relief on the fees for this. This covers membership fees for being part of the institute and you can backdate that claim for four years as well.
Other areas that everyone can claim for include washing their own uniform and travel in relation to work. If the job requires a uniform or work clothing and the employee washes these themselves rather than using a work-based laundry, then a tax relief can be claimed for this. Travel in relation to the business is another area where tax relief can be claimed for although you will need to keep records of the distance and other information in case asked to provide.
Research and development
One of the biggest areas of tax relief that many engineering businesses can claim for but miss out on is the R&D Tax Credit system. This was created nearly two decades ago with the aim of stimulating research and development across a range of industries in the UK because the government realised the economic benefits of this work.
Typically, businesses dismiss the potential of the RnD Research Development tax credit because they picture the classic laboratory set up where men and women in white coats mess around with test tubes to conduct R&D. However, the reality of the tax credit is very different and there are businesses as diverse as manufacturing, textiles companies, renewables and recycling businesses and house building and construction companies have all made successful claims as well as a number from the engineering sector.
How R&D Tax Credits work
The first thing to understand is what the definition of research and development is for the purpose of the tax credit. The company needs to have set up a clearly defined project to research or develop a specific product, service or process that is related to their business – so an engineering company can’t suddenly start claiming for work on a style of denim textile.
The definition used by the government is that the project must seek to ‘resolve scientific or technological uncertainties’ and can include the creation of new products, services or processes as well as the changing or modifying of existing ones.
In practical terms, this means that you can work towards creating some new process or engineering product or you could also work on solving a problem or improving a current process that is being used. You could even take work done by someone else and build on it to advance the knowledge or improve the process.
What costs and how much can be claimed?
There are a number of different costs associated directly with the project that the business can claim for once it is confirmed that the project qualifies. One of the big ones is the staff expenditure for the project including wages, NIC and pension contributions for the time that each person spends working on the project. So if 5 staff spend 50% of their working time on the project, the claim can include 50% of their salaries.
Other expenses that can be claimed for include expenditure on subcontractors and freelancers directly involved with the project and on software purchased for the project. Consumables and materials used solely for the project can also be included in the claim.
Perhaps the biggest bonus of the R&D Tax Credits system is that as a small or medium enterprise (SME’s) can claim up to 33% of qualifying R&D costs.
Making a claim
Many companies don’t use the R&D Tax Credit system because they don’t realise that it exists or they think the work they are doing doesn’t qualify. That’s why Easy R&D set up a system to look at a project and to assess if it will qualify for the credit, saving the business time and ensuring that claims are submitted successfully and businesses get the tax refunds they are due.
Easy R&D have helped hundreds of companies to make R&D tax relief claims. Contact your nearest R&D Consultant to see if you can claim – 0800 195 7516