PUBLIC FUNDING SCHEMES
Are Britain’s insulation innovators
missing out on major tax breaks?
With the new government Green Homes Grant scheme likely to trigger a wave of fresh innovation in the
insulation sector, Robert Kellner, head of content at R&D Tax Credits consultancy GrantTree, explains how
businesses could qualify for a number of government schemes and be eligible for cash and tax breaks
The £2 billion Green Homes Grant
scheme, which was announced
by the government last month, is
a huge victory for the insulation
sector. With some 650,000 households set
to receive up to £10,000 towards energysaving
upgrades, many businesses will be
looking at putting this windfall towards
improved products and services.
For those companies carrying this
tradition forward, there is even more
good news. They could earn thousands of
pounds in cash and tax relief through a
scheme called R&D Tax Credits.
Launched in 2000, R&D Tax Credits
offers tax breaks and cash lump sums
to businesses doing research and
development (R&D) on things like new
materials and tools.
Companies are able to claim back up
to 33% of the money they invest in R&D
through the scheme, which according to
the HMRC, pays out just over £88,000 per
company on average.
Despite the amounts available, many
businesses are not claiming the tax
credits they are owed. Of the 50,000 tax
credit claims filed last year, just 4% came
from the construction industry. Why?
Because too few companies realise they
are eligible.
More needs to be done to help
businesses decide whether they should
apply, and that’s why I’ve put together
the following information below to help
the insulation sector understand which
companies qualify, how much they could
receive, and how they can claim for their
cash and tax breaks.
Who qualifies?
Understanding who can claim R&D Tax
Credits is one of the most challenging
parts of the scheme. Below I have broken
down the HMRC’s criteria into a set of
simple questions. If you answer ‘yes’ to all
of them, then there’s a good chance you
will qualify.
1. Are you incorporated in the UK?
2. Were you seeking some scientific or
technical advance?
3. Were you trying to make something
you could one day sell to consumers or
the industry?
4. Did you encounter challenges along
the way, and you weren’t sure how to
resolve them?
5. Did you try to overcome these
challenges by experimenting in a
methodical way?
6. Was your development work overseen
by an insulation expert, with several
years of industry experience?
To make things simple and clear, I
have listed some examples of the kind of
work that should be eligible:
• Developing new insulation materials
• Building new survey and modelling
tools
• Designing new techniques for retrofit
work.
How do you apply?
There are two parts to the application
process: writing a technical narrative and
working out the financials.
Technical narrative – This is where
you explain what you did during your
R&D. In it, you will cover what you
were trying to make, what challenges
you faced, and how you went about
overcoming them.
You don’t need to write a technical
narrative. But having one really cuts
down your chances of facing ‘an enquiry’,
which is where you have to explain all
your work to HMRC over email or the
phone.
The financials – For the financial
calculations, you have to add up all your
‘eligible expenditure’. This is all the things
you’ve spent money on during R&D that
you’re allowed to claim for. Then, you
need to ‘apportion’ these costs based on
how much of each one was actually spent
on R&D. For example, if your company
spends 10% of its time on R&D, you could
claim 10% of your energy costs for the
workshop or lab where the R&D took
place.
Here is where things get a little tricky.
R&D Tax Credits is made up of two
schemes: SME R&D Tax Relief and RDEC.
The SME scheme is for small businesses,
while RDEC serves larger companies and
some SMEs which, for various reasons,
can’t apply for the SME scheme.
If you’re applying for the RDEC
scheme, all you need to do is add
your total eligible expenditure to your
CT600. If you’re applying for the SME
scheme, you’re allowed to ‘enhance’ your
expenditure by 130%.
Here’s what this means. Let’s say you
had £100,000 in eligible costs. You could
then enhance this figure by 130%, giving
you £230,000. This is the amount you can
claim for, and that you should put in your
tax return.
What can I claim for?
Your R&D Tax Credits claim is based on
how much you spent on R&D. There are a
range of costs you can claim for. Below are
the ones most relevant to the insulation
sector.
How much you can claim depends on
which scheme you’re applying to (SME
R&D Tax Relief or RDEC).
• Cost 1: Direct staff costs (100%
claimable through both schemes). This
includes salaries, PAYE, class 1 NIC and
pension fund contributions for staff
directly involved in the R&D, including
management.
• Cost 2: Prototypes (100% claimable
through both schemes). The costs
from the design and construction of
a prototype needed to test your R&D
work.
• Cost 3: Externally provided workers
(65% claimable through both
schemes). These are temporary workers
sourced from an external agency.
• Cost 4: Subcontracted R&D (65%
claimable through the SME scheme.
Not claimable through RDEC). The
work you subcontract out doesn’t need
to be eligible for R&D Tax Credits on its
own, so long as your wider project is.
• Cost 5: R&D consumables (100%
claimable through both schemes).
Materials and resources like fuel water
and power that are consumed in the
R&D process.
• Cost 6: Software (100% claimable
through both schemes) that is used
during eligible R&D activities.
w www.granttree.co.uk
There are a
number of
public funding
schemes
available to
innovative
companies.
However,
despite the
amounts
available,
many
businesses are
not claiming
the tax credits
they are owed
14 www.rcimag.co.uk August 2020
/www.granttree.co.uk
/www.rcimag.co.uk
