At RSM we are actively involved in the key sectors across Scotland and the UK which drive the economy and also the businesses of our Clients. Manufacturing is important to us with a UK Sector Team in place which brings together our knowledge, experience and service capabilities into a focussed group of people.
Stuart McCallum is the Sector Head for Manufacturing in Scotland. One of the areas we see as being particularly relevant to the Manufacturing sector is around innovation and tax planning aspects around that area.
Research and Development (R&D) tax credits are a tax relief designed to encourage greater R&D spending, leading in turn to greater investment in innovation. They work by either reducing a company’s liability to corporation tax or providing a cash injection for companies without a tax liability – typically loss-making businesses.
To qualify for R&D tax relief, a company must be looking to develop new or improved products, processes, materials, services or devices that represent an advance in science or technology through the resolution of scientific or technological uncertainty. The application of the relief is incredibly broad, and can be relevant to almost any company, provided it meets the relevant conditions.
Recent data published by HMRC earlier this year has highlighted significant disparities in R&D tax relief claims across different UK regions and sectors.
The statistics, which for the first time provide a detailed analysis of R&D claimants by region and sector, are naturally skewed in that the geographical analysis is based on companies’ registered offices, but nevertheless show some interesting regional disparities.
London tops the leaderboard for the number of claims at 4,885. It is also little surprise that over 40 per cent of claims in London are in the software and technology sector, narrowly ahead of manufacturing.
The North West was third in the rankings, with manufacturing dominating the claims made at 30 per cent of total claims, followed by software and technology, and professional scientific and technical.
As for Scotland, it places ninth out of the 13 regions in the UK with a total of 1,265 claims. Manufacturing comes in third out of R&D tax credit claims after professional, scientific and technical, and the information and communication sector.
Traditional manufacturing firms may not realise or acknowledge that what they do every day is in many cases incredibly skilled, and often market leading. Engineering businesses particularly are most at risk of failing to recognise their R&D activity (for example where developing processes or tooling). Overall, these figures confirm what we already knew, namely that there remain real disparities in claims across the country. We believe this is down to ongoing lack of awareness of how the relief can apply to certain sectors.
The patent box is another tax incentive that seeks to encourage innovative businesses to base their activities in the UK. The regime is designed to offer a reduced (10 per cent) rate of corporation tax for profits attributable to products or processes on which a UK or EU patent is registered. The patent box regime is independent from R&D tax relief, but there are a number of areas of cross-over, with the intention that it follows on from R&D in a product life cycle, where the output is patentable.
At RSM we have a range of specialists who focus on supporting companies on R&D projects to ensure that any reliefs are suitably obtained / maximised where possible. In Scotland, Stephanie McLeish, Tax Manager in Glasgow, is heavily involved in both R&D and Patent Box work – she is also part of our UK wide R&D team which ensures that ideas / experiences are shared / developed to assist clients.
Stuart and Stephanie will be at the SMAS 2018 National Manufacturing Conference on 30 May so please drop by to discuss or alternatively email Stuart McCallum, Partner/Head of Manufacturing Sector, Scotland or Stephanie McLeish, Tax Manager. Both are also available on 0141 285 390.