Innovation pays Transforming Manufacturing Businesses with R&D Tax Credits - Momentum - Manufacturing NI
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Innovation pays…
Transforming
Manufacturing
Businesses with
R&D Tax Credits
White Paper - Feb 2020
Momentum
GROUP
Transforming Manufacturing Businesses with R&D Tax Credits White Paper
Innovation in with practical R&D help and indeed R&D Tax
Credits.
towards unprecedented levels of integrated
automation, now is the time when an
Northern Ireland However, at the start of this new decade
there have been some green shoots of
investment in R&D could pay dividends in
future-proofing your company.
optimism for the industry. Investments in R&D are seen as important
Northern Ireland has a long and proud ways of building for the decade ahead with
history of inventors but there is growing In January 2020, the HIS Markit/CIPS innovations in new equipment, products
concern that our best innovators are not UK Manufacturing PMI, which includes and processes along with investment in
accessing the financial support they are Northern Ireland, was revised higher to 50.0 people and skills.
entitled to. from a previous estimate of 49.8.
That reputation for innovation and invention The PMI (Purchasing Managers’ Index) is
continues to this day with Northern Ireland an indicator of the prevailing direction of “Northern Ireland has a world class manu-
ranking fifth out of all the UK regions economic trends in the manufacturing and
facturing and engineering heritage. Con-
for R&D performance, according to the services sectors.
tinuous innovation is crucial to ensuring NI
Knowledge Economy Index Report, which The latest revision brings the PMI to its companies are able to produce products
was commissioned by Catalyst Inc in 2018. strongest reading since last April which and offer services that meet and exceed
Achieving Catalyst’s Knowledge Economy indicates a stabilising of the industry, global customer needs and expectations
aspirations could inject £3 billion of GVA to following eight months of contraction.
for the future. Invest NI’s R&D support,
the Northern Ireland economy by 2030 and Reasons for this include further clarity alongside the Government’s R&D tax credit
add more than 80,000 jobs. around Brexit, the General Election taking schemes, provides our advanced manu-
The Knowledge Economy is made up of place and the full restoration of Stormont facturing and engineering companies with
individual companies that create, develop as well as future sales orders. With an excellent financial support framework
and commercialise new ideas, technical further reference to the General Election, to accelerate and leverage greater R&D
processes and export them around the the Conservative manifesto, should it
investment. This in turn will lead to greater
world. be realised, will see a notable change in
R&D Tax Credits. The R&D Tax Credit rate commercial and economic benefits for
Catalyst is a community of innovators will increase from 12% to 13% for large businesses and Northern Ireland.”
coming together in a next-generation companies to boost key sectors.
science park with locations in Belfast, Bill Montgomery, Director, Advanced
Derry-Londonderry and Ballymena. Over It’s good news for SMEs too with the Engineering and Manufacturing, Invest
3,000 engineers, researchers, entrepreneurs Tory manifesto also making a welcome Northern Ireland
and executives from over 200 companies pledge to review the definition of research
are part of its thriving network that aims and development so areas such as cloud
to produce world-leading products and computing and data are incentivised.
services originating in Northern Ireland Supporting Research and Development is
(Source: Catalyst Inc, 2018).
R&D is vital to a productive economy.
a government priority as it is a key driver
of productivity growth. R&D investment
Rewarding
Firms that invest in R&D have around 13
percent higher productivity than those
enables companies to convert research
into practical innovations.
Innovation:
who don’t invest. More specifically within
the manufacturing sector, innovative
This ensures that companies can continue What are R&D
to make use of the latest advancements in
companies have experienced a growth rate
of 38 percent within the last three years,
technology and benefit from the ensuing Tax Credits?
productivity gains.
compared to 10 percent growth managed
by the least innovative. Although the manufacturing industry The government has developed an
accounts for the majority of R&D incentive initiative that rewards companies
The message is clear, innovation breeds expenditure in the UK (65% or £16.3billion investing in R&D.
success. in 2018), this is down from 84% in 1985.
R&D Tax Credits are a form of Corporation
Counteracting the effects of this trend Tax relief designed to promote and
Manufacturing – has been one of the main focuses of
UK industrial policy in recent years. For
encourage increased spending on R&D
projects. This leads to a greater investment
An Industry Overview example, successive governments have
supported the development of the Catapult
in innovation, and in turn ensures that the
UK manufacturing industry continues to
Centre Programme. thrive.
In 2018 manufacturing in the UK accounted
for: 8% of jobs, 2.7 million in total, £191 These organisations and campuses seek R&D Tax Credits are the most generous
billion of economic output, or 10% of the to connect businesses, academics and and under-claimed form of Corporation
UK total, 42% of UK exports, worth £275 industrial research so that technological Tax relief in the UK. It can be claimed by a
billion and 65% (£16 billion) of UK research advances can be more easily converted range of companies; from SMEs to larger
and development spending. into commercial products or processes. organisations, that conduct research
or seek to promote development and
In Northern Ireland, manufacturing The proportion of R&D accounted for by
advancement in their field.
generates annual sales approaching £20 manufacturing has declined in recent years.
billion, directly employing 80,000 people, Claiming is not restricted to white-coat
In 1985, manufacturing R&D investment
supporting production and employment in laboratory activity or projects that have
was 84% of total R&D, compared to the
a wider supply chain and creating jobs and been successful. It is applicable to all
current total of 65%. The proportion of R&D
strong communities. research and development activity that
spending accounted for by the service
relates to your company’s trade with
Manufacturing in the UK has faced a tough industries has seen a corresponding rise
the intention of advancing technology
operating landscape for a number of years over the same period, from 11% to 32%.
or science, with the exception of social
but as a result of this, support for the sector But with the industry on the cusp of a sciences and theoretical fields.
has become a priority for the Government ‘fourth industrial revolution’ as it marches
Transforming Manufacturing Businesses with R&D Tax Credits White Paper
Research and Development (R&D)
spending is analysed according to the
To put the level of claims into perspective,
HMRC figures showed that Northern HMRC Statistics:
internationally recognised “Frascati
method” for collecting and reporting on
Ireland companies claimed just 1.7 per cent
of the total monetary funds paid out across How has the
research and experimental development,
however for R&D Tax Credit purposes the
the UK, representing just 2.7 per-cent of all
claims. manufacturing
BEIS guidelines definition is as follows
“The activities which directly contribute Companies here are potentially losing out
on tens of thousands of pounds.
industry benefitted?
to achieving this advance in science or
technology through the resolution of Since its inception, The Momentum Group Latest HMRC statistics show that the
scientific or technological uncertainty are has helped its clients identify over £135+ Manufacturing, Professional, Scientific
R&D.” million of tax benefits. and Technical, and Information and
The Frascati Manual uses the following We believe the key reasons why Communication sectors continued to have
definition of R&D: …creative and systematic Northern Ireland lags behind are: a the greatest volume of R&D Tax Credit
work undertaken in order to increase the lack of awareness of the research and claims, making up a total of 68% of claims
stock of knowledge – including knowledge development incentive’s existence and and 73% of the total amount claimed for
of humankind, culture and society – and gaps in understanding of what qualifies as 2017-18.
to devise new applications of available R&D activity. In terms of manufacturing, this R&D-
knowledge.
Our experience is that many companies in intensive sector is still thriving despite a
For an activity to count as an R&D activity Northern Ireland could be carrying out R&D decline in its overall contribution to the UK’s
under the Frascati definition, it must be without even realising it. GDP. There has been a 31% year-on-year
“novel, creative, uncertain (about what increase in total claims and overall claim
the final outcome will be), systematic and Interestingly, the statistics show that local values for 2017-18’s partial data indicates
transferable/reproducible.” SME’s are driving the growth in claims, this year will comfortably surpass full-year
accounting for 82% of Northern Ireland’s values from 2016-17.
total R&D Tax Credits.
While the new figures show a growth in
To qualify for R&D Tax Credits within This goes to show that there is support the use of the R&D tax credit initiative by
To
thequalify for R&D Taxyour
BEIS guidelines, Credits withins the
company’ available for companies of all shapes, sizes Northern Ireland businesses – successfully
BEIS guidelines,
application mustyour company’
explain how thes application
project: and sectors and our mission is to work claiming £75m in 2017-18, by comparison,
must explain how the project: with them to help them get their slice of the Scottish companies claimed £175m, Welsh
• seeks to achieve an advance in millions that the UK government has made companies £95m and English companies
• seeks to achieve an advance in science
science or technology available. £3.9bn.
or technology
•• has
hasactivities
activitieswhich
whichdirectly
directlycontribute According to the Chief Executive of
contribute to achieving this advance Manufacturing NI, Stephen Kelly: “R&D
Finance Bill
to achieving this advance through the
through the
resolution ofresolution of technological
scientific or scientific or Tax Credits encourage innovation in the
technological uncertainty
uncertainty manufacturing sector, enabling companies
•• has
hascertain
certainqualifying
qualifyingindirect
indirectactivities
to thrive and look to the future with real
confidence.
2019-20: R&D Tax
related
R&D.
to the
activities
Activities
are also
project
related which
to the
other than
R&D. Activities
are which
project also
‘Qualifying
other than
“Companies that are making appreciable Credits lockdown
Indirect Activities’ improvements to new or existing
‘Qualifying Indirectwhich do notwhich
Activities’ directly
processes, products or services in the
contribute to the resolution of
do not directly contribute to the the In late 2018, the Government announced
project’s scientific or technological manufacturing sector could be eligible
resolution of the project’s scientific or for significant financial benefits for their plans for a cap on the amount that a
uncertainty are not R&D loss-making company can receive in
technological uncertainty are not R&D innovation.
(Source: Gov.uk, 2018) R&D tax credits. This level of rigour was
(Source: Gov.uk, 2018) “It has been encouraging to see an increase re-introduced to the process to prevent the
in the number of claims being made misuse of R&D tax credits and to ensure
but it is still surprising to see how many companies are provided with professional
companies are missing out.” and strategic advice.
Successful claimants may be able to
recoup substantial development costs by Successfully identifying projects that
way of cash or credit for every year in which qualify for R&D tax relief requires
qualifying R&D activities have occurred. While HMRC statistics show many considerable technical knowledge in
industries in the UK are wakening up to the improving product processes and systems,
benefits of R&D Tax Credits, the potential is as well as an in-depth understanding of the
R&D far greater. In our experience, there are still legislation. In an unregulated area, involving
complex financial review, working with an
so many manufacturing businesses that
expert team is vital.
Support for R&D spending is a priority are either not aware of R&D Tax Credits,
in Northern Ireland with the Executive incorrectly think they do not qualify or
aiming to drive the country into the top four feel they lack the necessary experience to
regions in the UK in terms of innovation by submit a claim. In fact, many companies
2025. are not claiming their full legitimate
Currently Northern Ireland businesses are entitlement.
spending £759.2 million on R&D but the
target over the next five years is to raise Tom Verner,
this figure to £1.2 billion. The Momentum Group
A total of £75 million was paid out to
businesses in Northern Ireland in R&D Tax
Credits during 2017-18.
Transforming Manufacturing Businesses with R&D Tax Credits White Paper
Manufacturing R&D Case Studies
“As an innovative company, Cimpina are “In uncertain times where the impact of “In the waste and recycling sector we are
always trying to push the boundaries in the Brexit and rising costs of doing business continually focusing on safety and are
projects we undertake. In 2015, a business are top of mind for the manufacturing actively looking for ways to reduce the risks
associate of ours recommended that we sector, it is imperative for firms to look to workers on waste collection vehicles.
look into R&D Tax Credits which we hadn’t at ways of being more competitive Research and development has played a
heard of before. As this was an area where and increase their opportunities for key function in giving us clear foresight
even our accountants were unfamiliar with, international trade. In a manufacturing about future technological uncertainty that
we engaged with a local specialist R&D business, every action is designed around needs to be resolved. I believe research
Tax Credit firm to review our business. R&D activity creating new products and and development can be a catalyst for
Unbeknown to us, quite a proportion of quicker, with better and more cost-effective speeding up product and process growth
the projects we are involved in actually outputs. The Government’s R&D Tax Credit and this has helped Macpac Refuse
qualified. These significant rebates initiative is there to support that process Bodies introduce innovative designs to
year-on-year allows Cimpina to further and more companies should be using this produce better machinery into the market,
develop our processes and take a risk in opportunity to improve their business and bolstering our side loading waste collection
attempting new projects that have a level their processes.” vehicle range. Focusing on research and
of uncertainty. In a competitive industry, development has helped Macpac Refuse
where we aim to be the best at what we do, Stephen Kelly, Bodies with its competitive edge and
R&D Tax Credits have allowed us to expand Chief Executive seeing the benefits first-hand; therefore,
our services, remain competitive and Manufacturing NI we’ve been able to recruit a specialised
maintain and grow our staff.” R&D member to further develop our
products.”
Paul Hamilton,
Business Development Manager Drew Stewart,
Analysis of the latest HMRC figures show that Northern
Cimpina Ireland businesses accounted for £75m of all R&D Tax Managing Director
Credits claimed across the UK for the year 2017-2018. Macpac Refuse Bodies
However, this accounts for just 2.7% of the total number
of claims on a national level and a mere 1.7% of the
total monetary benefit claimed. Of the 1,310 Northern
Ireland claims, 1,100 were claimed under the SME R&D
initiative with the remainder claimed under schemes for
large companies (RDEC). The average amount claimed
by companies in Northern Ireland was £57,250, with
the average for SMEs being £41,000. For SMEs, this
represents an 11% increase in the number of claims and
a 13% increase in the value of claims.
About The Momentum Group Momentum has helped hundreds of highly Take the next step
competitive companies, from manufacturing
to construction, food & drink to technol- For more information visit:
Founded in 2009, Momentum is one of the
www.momentumgroupni.com
longest established R&D Tax Credit advisory ogy, to claim this UK government incentive.
firms in the UK. It is also one of the only The team includes accountants, business, Follow them on social media:
R&D tax credit practices that focuses on commercial and ex-HMRC technical experts Facebook (@MomentumRandD)
providing advice on long-term innovation to ensure every claim gets the necessary ex- Twitter (@Momentum_RandD)
strategies, offering a complimentary annual pert scrutiny and is thoroughly investigated. LinkedIn (Tom Verner)
review to its client, enabling them to assess In addition, the Momentum Group recently linkedin.com/company/momentumgrouprandd
current and forward-plan future research and announced a partnership with Manufactur- Phone: +44 (0) 28 9140 4030
development projects. ing Northern Ireland, becoming its exclusive Email: taxcredits@momentumni.com
R&D Tax Credits partner.
References
www.gov.uk | www.ons.gov.uk https://www.gov.uk/guidance/northern-ireland-corporate-tax-office-nircto
www.nisra.gov.uk | www.investni.com https://tradingeconomics.com/united-kingdom/manufacturing-pmiYou can also read
