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David O’Keeffe is an expert on tax credits for research and development. He was involved in the system’s creation 15 years ago, and regularly advises government and businesses of all sizes on the taxation of innovation and intangibles. O’Keeffe set up KPMG’s R&D tax credit team in the early 2000s, and today runs his own consultancy, Aiglon Consulting, specialising in R&D credits. He has helped hundreds of businesses to get the most from the R&D tax credit system.
“R&D tax credit is still one of the most under-claimed tax reliefs available to businesses, because there is a lack of understanding about what it is and what can be claimed for,” he says. “The key is knowing where to look for R&D.”
A knowledge deficit often exists between what an engineer does and what the finance department knows. Many times, a company falsely assumes that it undertakes no R&D. “It’s the biggest mistake people make,” says O’Keeffe. “They say they build things, that they don’t do R&D.
“In my experience, any company that is developing new or improved products or processes – even just to stand still in the market – is likely to be doing R&D.”
To qualify for R&D tax credits, a company has to be filling a technological knowledge gap and using a systematic, project-based approach.
The benefits are high. There are two bands of relief: an SME rate for companies of fewer than 500 people and another rate for large businesses. If in profit, SMEs can recover up to 26% of R&D expenditure and if they are loss-making, up to one-third. Large companies can claim up to 8.8%.
For example, an SME spending £100,000 on R&D could pay up to £26,000 less in tax as a result of claiming. A large company spending £1 million could receive up to £88,000. R&D tax credits can be claimed on expenditure incurred up to three years ago.
So what should engineers be doing to pursue these credits? “Internally, an engineer can think carefully about what it is they are doing that could qualify. Then go and talk to the finance director or the head of tax, and put pressure on them to act,” says O’Keeffe.
More information can be found at aiglonconsulting.com