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MANUFACTURING: Midland firms missing out on R&D tax relief.

Manufacturers in the Midlands are missing out on millions of pounds of research and development tax relief, it is claimed.

A survey of 560 small and medium sized enterprises conducted last year by business advisory firm Deloitte found that all manufacturers surveyed in the Midlands that are eligible to claim R&D tax relief are failing to do so

The second worst region is the South-west, with three quarters of manufacturers failing to make a claim, followed by the South-east with 63 per cent. The best performing region is the Northeast with 50 per cent of manufacturers making the most of the available tax relief.

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.

According to the research, 55 per cent of businesses across the country eligible to claim R&D tax relief were not doing so.

Despite being an R&D heavy industry, of the 160 manufacturers surveyed, 71 per cent of eligible businesses were not claiming the relief.

A third of these manufacturers did not think they carried out R&D whilst 20 per cent were not aware of the R&D tax relief.

Jane Lodge, Birmingham-based UK manufacturing industry leader at Deloitte, said: "The 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.

Ms Lodge added: "In a normal manufacturing cycle, up to 80 per cent of the total intellectual property in a product is contained in the know-how surrounding the manufacturing process.

"It is likely that activities eligible for R&D tax relief are being carried out but this is the sort of activity that is rarely considered by manufacturing companies."

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

Manufacturers should consider three questions which could help them discover whether they carry out eligible activities:

Have you reviewed your activities since the revised guidelines regarding the definition of eligible R&D were published? New, clearer, guidelines focusing on technological challenges were issued in 2004 but many companies haven't reviewed their activities in the context of this improved definition

How many technical specialists do you employ? If you employ more engineers and scientists than you would need to merely maintain the status quo there is a good chance they are dealing with the sort of technical challenges that characterise eligible R&D

Do you make experimental prototypes or run interactive manufacturing trials? This is a good indication that R&D is being carried out and could involve considerable cost that qualifies for the relief
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Title Annotation:Features
Publication:The Birmingham Post (England)
Date:Mar 1, 2007
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