The pace of change in the world is ever increasing, with what were new technologies in my youth now seen as obsolete novelties by my children. Along with this is the ever-increasing pressure to be seen to be innovative but we need to be careful about introducing change for change’s sake. Innovation means something different to different people but could be broken down into three areas
- Doing something new
- Doing something done already in a different way
- Doing something done already for a different purpose
People may disagree, but my feeling is that whereas change can be for better or worse, innovation would always carry a positive connotation (though recognising not every stakeholder might see any particular change in this light). Businesses should be encouraging their staff to think critically about everything they do – and no, this does not just mean moaning to the boss – and not just blindly follow existing process. Anyone at any level is a potential problem solver and should be emboldened to put forward their ideas for improvements with the confidence that they will be heard.
There is always the possibility that your innovation could move into the realm of achieving (or at least seeking to achieve) a real advance in science or technology such that companies could consider making a claim for tax relief for Research and Development expenditure.
Many people think of R&D as requiring a laboratory full of people in white coats carrying out scientific experiments but for tax purposes that is not the case and many more companies could benefit from an R&D claim than might be first thought.
At the moment additional tax relief for R&D expenditure is only given to companies. This is unfortunate for sole traders and partnerships but don’t let this put you off being innovative, there are the commercial benefits to consider and not just the tax.
In order to make an R&D claim a company should be able to articulate the details of the project(s). The details provided should show the company’s approach to the following questions:
- What is the scientific or technological advance?
- What scientific or technological uncertainties were encountered?
- How and when were the uncertainties overcome?
- Why wasn’t the knowledge being sought readily deducible by competent professionals?
Once the company has established the boundaries of the project the next stage is to identify the costs that have been incurred and then there is just the mechanics of making a claim. A company may make a claim within two years of the end of its accounting period. This is useful if a company wants to consider more than one accounting period at a time but there may be cashflow benefits to making the claim within the company tax return and filing as soon as possible particularly if the company is making trading losses.
Sometimes the hard part is for experienced people to identify that they are doing anything innovative for their industry. Take the first step by asking yourself “what problems am I trying to solve and why?” and then get in touch to see how we could help.
Please feel free to leave a comment or email me on emma@insight-sa.com
Emma Humpage – Insight’s Tax Principal