Wendy Smith, business development manager for Jumpstart in the West Midlands, talks to BQ about research and development (R&D), oiling the Midlands engine and why industry is still missing out on millions of pounds of R&D tax relief.
How has the appetite for R&D tax relief changed in recent years?
We are seeing a major increase on the ground, with a lot more companies now considering whether they are eligible or not and looking for someone to guide them through the intricate web R&D tax relief can be.
This is what our 13 technical analysts, who work across the UK, are telling us every day and this is backed up by figures from HM Revenue and Customs (HMRC). The most recent data (for the year ending March 2016) shows an overall rise in the number of claims (26,255) and the benefit realised by companies (£2.9bn). These are up 19% and 20% respectively.
If we look at the regional figures for the Midlands, we find that the number of claims, and the value being claimed, is relatively lower than would be expected. Given that manufacturing companies receive 32% of the total benefit in the UK, and given the importance of manufacturing in the Midlands, it’s a little disappointing to see that overall the region only receives 13% of the total benefit.
What have been some of the major changes for claiming R&D tax relief and how will these develop in 2018?
Possibly the most significant trend is the increasing number of claims that are being disputed by HMRC, with leading law firm Pinsent Masons quoting that this has increased in value from £90m to £425m in just 12 months.
It doesn’t take a rocket scientist to work out that the government is becoming a lot more vigilant in assessing claims and in policing the scheme in general and this is something we welcome.
There is a lot of money at stake and it can make a major difference to the companies that are rightfully submitting an application. It will also help to address the significant number of R&D tax relief providers that are entering the marketplace, many of whom don’t have the same level of experience or expertise as more established organisations. Some of them can just see the opportunity to make a “quick buck”.
The rise in the value of disputed claims by HMRC makes it all the more important that manufacturers thinking of claiming choose a specialist, like Jumpstart, that focuses on robust defensible claims and offers “free enquiry” defence as standard on every claim it prepares and submits.
Finally, we have also seen a change in emphasis within the engineering and manufacturing sectors toward claims for activities undertaken within process innovation projects.
Do you feel more Midlands companies are switching on to the benefits of applying for R&D tax relief?
Again, the statistics suggest Midlands companies are switching on to the benefits of the scheme faster than companies across the UK as a whole.
While the number of local firms claiming has grown roughly in line with the UK average, the value being claimed in this region has grown a whopping 26% between 2015 and 2016 (compared with 20% nationally). If we could match that growth over the next three years, we could easily add a further £300m to the Midlands economy.
However, there is a “but” coming. This increase in the number of claims being submitted doesn’t mean manufacturers are maximising the full value of benefit available to them. Our technical analysts are still finding a significant number of inaccurate claims amongst companies preparing their own claims and those of other providers.
Choosing a specialist with a track record in maximising the value of benefit within a robust defensible claim is key for unlocking the region’s “innovative” potential.
What are the challenges you are faced with in getting companies involved in this scheme?
This is an easy one and one that has been around for as long as R&D tax relief has been offered.
The biggest challenge is ensuring companies – regardless of whether they make fasteners for aerospace, produce food ingredients or develop new batteries for electric vehicles – recognise that a lot of what they do qualifies for relief.
Many believe R&D is just about creating new products or bringing a new technology to market. That is not the case, it’s more about doing things differently to achieve a competitive advantage, cost saving or just to help your business run that little
Take the earlier point of R&D within process innovation projects for example. Many manufacturers believe that technical challenges faced on a day-to-day basis simply wouldn’t qualify under the scheme’s criteria. This is definitely not the case. As long as the projects are looking to achieve an appreciable advance in their field of technology and there are technical uncertainties to be addressed, then there’s a good chance the companies can make
Our advice for busy firms would be to pick up the phone and get an expert to go through your claim with you. They will very quickly tell you if you’ve got a claim to take forward.
Jumpstart has recently opened an office in Birmingham. What were the reasons behind that decision?
The Midlands is rich in manufacturing expertise, especially across automotive, aerospace, food, rail and renewables. These are sectors containing lots of firms that thrive on innovation and doing things differently, so are in a perfect position to claim significant R&D tax relief.
With that in mind, it made perfect sense to open an office in Birmingham, giving us a real presence on the ground and a base from which to grow our market share in this area. This is only our second location outside of our headquarters in Scotland so shows how committed we are to supporting the Midlands manufacturing base.
If we can help the region be as effective at claiming its R&D tax relief as its counterparts in London and the South East of England, we estimate it could bring in between £47m and £64m every year. That’s a lot of cash for reinvestment in new equipment, plant and, importantly, jobs.
Jumpstart is keen to help drive the Midlands Engine and to ensure it maintains its competitive edge through innovation. Increased productivity equals increased wealth.
How have the first eight months been?
We are really pleased with the response from industry in the region, with about 50 clients added to our existing 100-strong Midlands portfolio.
Importantly, having a presence in the area has helped us forge new partnerships with key organisations like the EEF, National Defence Industries and Rolls-Royce Control Systems supplier development programme.
If you could advise the government on future changes to the R&D tax relief scheme, that would benefit companies in the Midlands, what would you ask for?
Jumpstart would ask the government to continue to focus on making this scheme more attractive to small and medium-sized entreprises (SMEs). This is the part of the economy where the majority of innovation happens in the UK and it’s important that we provide as much encouragement as we can to this segment of the marketplace.
We also feel that it would be a wise move to focus on encouraging innovation in the key areas identified in the government’s Industrial Strategy by enhancing benefits for R&D in priority fields of technology and science.
There could also be greater enhancements for R&D activities in technologies identified as being critical to the UK’s future competitiveness by agencies including Innovate UK and UK Research & Innovation.
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