Expert Eye

Innovation is critical to addressing the UK’s productivity gap and the Government supports research and development (R&D) to the tune of around £5bn a year via tax credits.

15 April 2021

Russell McGrath

In 1986, UK firms were spending around £20bn on R&D into new products, processes and innovations. That figure has now grown to more than £37bn and represents around 1.7% of the country’s total GDP. However, it is below the OECD average of 2.4%. In Germany it is 3.1% of GDP, the US 2.8% and France 2.2%.

Businesses such as manufacturers, software developers, biotech and scientific ventures can claim tax relief on the money they invest in R&D. But according to Russell McGrath, an innovation funding specialist for tax and innovation consultancy, ABGI-UK, understanding what counts as R&D and what doesn’t is key to maximising a claim.

ABGI-UK operates across the country and is part of the global, stock-market listed Visiativ. Russell says that in the five years he has been involved in the business, awareness of R&D tax credits has increased significantly, as has the number of consultancies that have popped up to service this demand. He explains that ABGI works differently to most.

“Once you have decided how much you have spent on R&D the claiming of the tax relief is a pretty straightforward process,” he said. “However, figuring out what does and doesn’t count as R&D is less straightforward and that is where we come in.

“HMRC publishes a 500-page document outlining the rules on claiming R&D tax relief, and understanding the difference between using existing knowledge in engineering, software or science and pushing the boundaries to create new innovation, is crucial to what we do.

“Many of our competitors employ accountants, who don’t necessarily understand the R&D itself. They tend to ask the customer to work out what constitutes R&D activity and how much has been carried out, before performing the tax calculation at the end. They are effectively asking the customer to do the work.

“At ABGI our approach is different. We employ a team of scientists, software engineers and physical engineers who will actually assess the R&D work that has been done before we make a claim. It means we can spot things that others may not, thereby helping the customer to maximise their claim.”

Article originally published on Knowsley Insight

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