For some companies in the UK’s renewable energy sector, research and development (R&D) tax credits could offer a helping hand when they most need it. For those which qualify, R&D tax credits have the potential to deliver a financial boost across the sector and help ensure companies can not only survive but also continue their on-going investment to ensure they are world-class.
R&D tax credits have been an excellent measure in driving forward competitiveness in British business by incentivising companies to invest in innovation in return for tax breaks. For every £100 of qualifying R&D expenditure, relief is available at £25.00 for profit-making SMEs and at £33.35 for those making a loss.
Many wind and solar energy businesses push technological boundaries on a daily basis. Whether it’s prototyping, development or experimentation with materials or physical production processes, there’s a wide variety of disciplines involved in advancing the science responsible for energy production, all of which could qualify for substantial tax rebates.
In our recent experience working within the renewable energy sector, however, we have found that many businesses appear to be missing out. Renewables companies are spending staggering amounts on developing new technologies yet only a small portion are claiming the R&D tax relief benefits – which could be worth hundreds of thousands of pounds – that they may be entitled to.
In this currently challenging financial climate, we believe there are a significant number of renewable and alternative energy businesses which could benefit from this incentive by either reducing their tax bills or, in some cases, securing a tax repayment.
Determining what exactly qualifies as R&D expenditure usually requires expertise of HMRC’s rules. Companies investing in qualified staff who are seeking to solve what at first appears to be an un-solvable problem to improve their product or service offering could find that they are eligible. Those which do qualify can leverage the scheme to secure tax relief on day-to-day costs and expenditure, including staff, subcontractors, materials, software and utilities.
Examples of wind energy businesses making successful R&D tax relief claims include those whose investment in innovation led to them meeting higher efficiency targets. This included companies which were able to safely enhance the yield of their turbines as well as those which advanced the design of their rotor blades to improve reliability, structural resistance, aerodynamic properties and noise-related performance.
Meanwhile there are great examples of R&D-focused innovation going on within solar energy businesses which also qualifies for tax credits. This included companies which were able to enhance the yield of their solar panels, decrease losses in regulators and converters, increase the efficiency of monitoring tools and better manage storage technologies, such as battery packs, for off-grid applications.
There are however challenges in submitting a successful R&D tax relief claim. It is vital to separate the routine parts of a project from the non-routine, especially when dealing with large, high-value, complex ‘first-in-class’ items. These may entail a significant level of innovation, sometimes involving several projects. It is however, unlikely the entire build costs will qualify for R&D tax relief. It’s therefore important for companies to identify and assess which parts of the ‘first-in-class’ items contribute towards eligible expenditure, seeking professional help where it is required.
It is vital for renewables businesses to demonstrate which of their activities qualify for R&D tax credits and how this will open up a new revenue stream to fund further innovation-focused projects going forward.
Our specialist team can help businesses ensure they claim in the most efficient way possible and avoid the potential of HMRC censure for an inaccurate claim.
To speak to us about whether you can qualify for and R&D Tax Credits, please call us on 01275 867350. Alternatively, you can send us a message now.