Renewables businesses have the ability to secure substantial sums from their research and development costs by taking advantage of tax relief claims but they are failing to do so.
While many UK renewable energy companies have already been successful in their tax relief claims, the sector as a whole is still not securing their claims. This is according to Jumpstart, a company which was created to support UK businesses make HM Revenue and Customs Research and Development tax relief claims.
Reasons are many and varied
The renewables business calls for a great deal of research and development as the search for innovative products intensifies. This is due mostly to ambitious carbon emission and energy efficiency targets. So, we were a little more than perplexed to hear that renewables firms are not taking advantage of tax relief claims.
We asked Brian Williamson, Managing Director of Jumpstart to explain why renewables businesses are failing to investigate the full potential of Research and Development. He told Engerati the following: “The reasons are many and varied. Some don’t think they do enough Research and Development; some simply don’t want HM Revenue and Customs knowing more about their business than absolutely necessary; and some even think it’s a loan!”
He goes on to explain that most small and medium businesses’ first instinct on hearing “tax relief” is to run the concept past their accountant who, as far as identifying qualifying processes or procedures is concerned, sometimes share the same misconception as everyone else. He explains that Research and Development tax relief is “first and foremost” a technical area and calls for a “special combination of skills.”
It is for this reason that Jumpstart employs post-graduate experts who not only understand the legislation in detail but can also interpret the complexities of companies and can explain the nature of Research and Development in precise terms to the experts in HM Revenue and Customs who will make the final decision.
Tax credits to encourage renewable development
Introduced in 2000, Research and Development tax credits are the UK Government's way of encouraging the development of innovative products and services. The tax relief plan is meant to help companies find new and innovative techniques, and at the same time, ensure they can compete internationally. The plan helps to reduce some of the financial risk.
From April 2012, companies can deduct up to 225% of qualifying expenditure when calculating their profit for tax purposes. Companies can claim Research and Development tax relief on expenditure that is up to three years old.
Small and medium businesses which are in profit can claim up to 30% of eligible expenditure and those that are in a loss, have the ability to recover up to 24.75% of eligible expenditure.
The precise size of the tax credit is dependent on the size of the company, its tax rate and how many of the company’s activities are eligible. Smaller companies, for instance, can claim at a higher rate and qualify for extra financial support if they are making a loss.
Jumpstart says it has managed to claim over £60k for a single renewable business client in a single year. The average initial claim size is in the region of £26,000.
Tax claims made easy
To help companies make successful tax claims, Jumpstart has brought to the market a unique, tailored approach marked by the recruitment of sector-specific technical analysts with credible industry experience and post-graduate research qualifications.
The Jumpstart team comprises of scientists and technologists, including chemists, biologists, engineers, physicists and software engineers, who understand each market area and can produce robust applications, which in turn have resulted in significant Research and Development claims for its clients.
Jumpstart was founded in 2008 to address a huge opportunity in the market to engage with UK businesses by informing and guiding them through HM Revenue and Custom’s Research and Development tax relief claim process.
Within a relatively short period, the business has grown its client base to over 500 companies across all regions of the UK and has an annual business pipeline in excess of £10m.