Manufacturers miss out on R&D tax relief

Published:  18 December, 2007

UK manufacturers are missing out on tens of millions of Pounds of Research & Development (R&D) tax relief, with many companies not investigating whether their activities qualify for the benefit.  Despite the definition of R&D for the purposes of tax relief becoming more clearly defined, research by Deloitte suggests that companies are still unaware of how wide the definition actually is, or do not involve their technical employees in the claim preparation process.

A survey of 560 Small and Medium Enterprises conducted last year found that 55% of businesses eligible to claim R&D tax relief were not doing so.  Despite being an 'R&D heavy' industry, of the 160 manufacturers surveyed, 71% of eligible businesses were not claiming the relief.  A third of these manufacturers did not think they carried out R&D whilst 20% were not aware of the R&D tax relief.

The figures are more alarming when analysed by region.  Almost three quarters of manufacturers in the South West are failing to claim R&D while all manufacturers surveyed in the Midlands eligible to claim R&D tax relief are failing to do so.  In the South-East, 63% of manufacturers are not claiming R&D tax relief while the best performing region is the North East with 50% of eligible manufacturers making claims.

Jane Lodge, UK Manufacturing industry leader at Deloitte explained: "The UK Government has recognised the importance of investment in R&D and has introduced significant incentives to encourage UK manufacturers to invest in new and innovative products as they face growing competition from emerging markets. Yet many companies are mistaken that they do not undertake eligible R&D and therefore do not make claims. With rising costs in energy and raw materials, it is all the more important that manufacturers receive this cash injection.”

Part of the problem for manufacturers comes in identifying eligible activities and appreciating the fact that activities can still qualify even if the company is being paid to perform the work. David Cobb, Deloitte"s R&D service line partner, warned:

“Time is now running out for many of these companies as the deadline for claiming the relief for a number of years expires on 31 March 2008 due to a change in the rules last year.”