Research & Development tax relief claims

As Research & Development (R&D) tax relief claims become more popular across the UK for both SME and large sized corporations, it is no surprise that HMRC is cracking down on the review process for who they grant this generous tax relief to. It is known that the number of fraudulent R&D claims being submitted is increasing year on year. This may have contributed to why HMRC have chosen to expand their innovations team, with the goal of implementing a more structured review process.

Although more scrutiny towards claims is welcomed across the industry, it has not gone unnoticed that the unfortunate downside to this is the delay in processing times for both the SME and RDEC schemes.

If you are looking to prepare an R&D tax relief claim, be reassured that AAB’s specialist team take time and due care to prepare each one of our clients robust R&D claims. Should any of the claims prepared by us be subjected to a HMRC query, our understanding on the relevant R&D legislation and experience of liaising directly with HMRC ensures we will have all of the essential evidence to support your claim.

The UK tax system provides companies with enhanced tax relief for expenditure on qualifying R&D activities. These activities could deliver a cash flow benefit to those innovating in the textile sector, as long as projects comply with the key eligibility criteria required. This relief can:

  • Reduce existing tax liabilities;
  • Result in a cash payment to the company; and
  • Reduce future tax liabilities.

The claims process followed by AAB for R&D tax relief

  1. Working together with AAB’s specialist R&D engineers, the qualifying R&D projects are identified.
  2. Working together with AAB’s specialist R&D engineers, the qualifying expenditure on the identified R&D projects is collected.
  3. AAB’s specialist R&D engineers prepare the claim package: supporting technical report and cost assessment.
  4. The claim is filed with the submission into HMRC’s portal.
  5. After processed by HMRC, the cash flow benefit is delivered.
  6. Repeat process next year.

If you would like further information or would like to discuss support for your claim, regardless of the industry in which your business resides, please do not hesitate to contact with Alejandro Alcala or any member of our specialist R&D Tax Relief team.

Our accreditations

‘Fiscal Drag’ pulls more UK Taxpayers into higher rate bands 

As inflation reaches 9% in the UK, the freeze on the income tax rate bands will inevitably push more taxpayers into higher brackets.

It was announced in the Budget last year that the income tax personal allowance and higher rate threshold will be frozen from 6 April 2022 to 5 April 2026, rather than increasing with inflation. During this four-year period, it is expected that more individuals will be pulled into the higher and upper rate bands as wage growth will attempt to keep pace. Similarly in Scotland, it is anticipated that the number of taxpayers crossing into the intermediate, higher and top rate bands will increase.

The total income tax paid by additional rate earners has already increased by 77% in the last decade. The tax collected by those earning in excess of £150,000 was up from £34.5bn in the 2010/11 tax year to £60.9bn in 2019/20. HM Revenue & Customs now receive 32% of all income tax from those earning in excess of £150,000 per year, compared to 23% a decade before.

This type of revenue collection can be seen as a stealth tax, as receipts are raised as a result of inflation and wage growth, rather than by increasing tax rates or lowering the bandings.

In real terms, taxpayers are climbing into the next tax bracket at a lower level of income than in previous years.

Top talent may consider overseas relocation

The UK can no longer be seen as a highly competitive jurisdiction in terms of a low tax regime, with increases to National Insurance and the freeze on tax rate bands.  

This increased tax burden on the highest earners in the country, may well lead to an exodus of top talent overseas to mitigate their tax burden. This could also have implications for the UK in attracting skilled workers from overseas into the market.   

Relocating overseas is a significant step to take and of course, lifestyle and family factors must all be taken into account, not just the tax position.  It seems increasing likely however that many additional and higher rate earners based in the UK may seriously consider relocation options, particularly now that digital communication and remote home working provides unprecedented geographical choice.  

There are countries such as the UAE and Portugal, who very deliberately set low or zero tax policies to help attract higher paid individuals or investors. These regimes, and other key, low tax jurisdictions, may also attract key investors or pensioners with large pension pots who wish to move overseas and draw down on UK pensions at more favourable tax rates, whilst also enjoying a higher standard of living.  

Professional tax planning is key to any potential move overseas. AAB can provide clear and concise guidance in relation to the tax implications of any relocation, including bespoke tax mitigation strategies.  

If you would like further information on the implications of inflation on your personal tax position or would like to discuss tax planning opportunities including a move overseas, please contact either Lynn Gracie, Lyndsey Russell, or any member of our Private Client International Tax Team.

Our accreditations

Protecting employee data – is your head in the cloud?

Having a clear technology strategy is important to adhere to the increased complexity of payroll operations and compliance with UK and international regulations.

Few organisations are operating cloud-based payroll systems and consequently sensitive data is passed regularly via email or other non-secure data exchanges, putting the organisation at risk of a data breach.

Cloud-based payroll systems offer additional security through encrypted technology and support not often found in traditional systems used by SMEs. The risk of falling victim to data exposure or fraud is greatly increased without this encryption.

In recent years the shift to remote working has been embraced across many industries and with this adjustment in working habits expected to continue, protecting sensitive employee information in multiple workspaces (or home offices) can be extremely challenging, unless the system is based on the cloud. Cloud-based systems can offer peace of mind that all data is being held on a system using the latest security technology while adhering to any legislation changes.

However, with an increasing number of payroll systems and payroll bureau available, organisations are faced with difficult decision of selecting the right fit for their business. Making the right decision based on the organisation’s risk appetite and an understanding of the broader IT and business strategy is vitally important for payroll system selection.

Having good data is increasingly important to ensure governance and control over systems and processes. At the same time, your employees expect you to act responsibly with their personal information and to respect their right to privacy. Failure to comply with the law can lead to serious legal and financial consequences and significant operational challenges, such as business disruption, financial loss and reputational damage.

Questions for businesses

Digital technology trends and higher expectations have led to features such as real-time reporting, payslips being sent to mobile devices, the production of meaningful information from significant volumes of data, and payroll communicating with other systems, transforming the payroll landscape.

Managers and business owners looking to update their technology strategy should begin by asking:

  • Is our payroll data secure and have we performed penetration testing or tested compliance with ISO 27001?
  • Does our current payroll system or outsourced bureau fit into the overall technology strategy?
  • What interface do we have for the payroll process and how do the outputs link to our HR and finance systems?
  • Have we analysed the cost of running the global payroll systems and number of vendors?
  • Are we confident that our outsource provider can deliver an end-to-end technology led payroll solution?
  • How can we take advantage of technology for a more resilient and efficient payroll process?

The expert view

Paying employees accurately and on time has always been the main objective for payroll. Historically, payroll has been seen as a low-risk function, generally automated (or outsourced), however cyber attacks and data breaches are more regularly troubling the higher levels of management.

At a time when employment taxes are now the largest source of government income, it is only logical to review your payroll function to ensure it is both efficient as well as secure. Tax authorities increasingly see the payroll function as their primary tax collection agent, transferring the burden of responsibility on employers in what can feel like continuous regulatory changes.

It is paramount for the payroll function to operate efficiently and to meet all legislative requirements. Embracing cloud-based technology will help employers pay their employees accurately and on time while remaining fully compliant with all HMRC policies.

If you have any questions or would like any further information on issues regarding Payroll, please don’t hesitate to contact Payroll Director, Stuart Law or any member of our Payroll & Employment Taxes team.

Our accreditations

Why hydrogen & why now

Over a third of the UK’s carbon emissions are generated by the 80% of domestic homes currently using natural gas for heating and cooking. The UK is committed to reaching net zero emissions target by 2050, therefore, the gas we use needs to change whilst ensuring the UK can secure an uninterrupted, cost effective energy supply.  

The Government stated in its 2021 Hydrogen Strategy that part of the solution is the importance hydrogen has in supporting the decarbonisation of the UK economy, particularly in ‘hard to electrify’ UK industrial sectors, and can provide greener, flexible energy across power, heat and transport. 

The UK has significant experience in the production, transportation, storage and use of natural gas and has extensive knowledge in the manufacture of hydrogen which is produced from natural gas and used as a feedstock in chemicals and refineries. In addition, hydrogen is currently used as a fuel, in small volumes for cars, trucks, buses and marine vessels. A notable project being Aberdeen’s hydrogen refuelling stations and investment in a varied fleet of hydrogen buses, cars, vans, road sweepers and waste trucks.   

This makes the country well positioned to take advantage of its existing infrastructure and expertise to establish a competitive advantage and become a leader in the production of sustainable, low carbon hydrogen.  

With the current Russian and Ukraine conflict forcing the issue of energy security and the high profile increase in cost of natural gas, the importance and economic viability of sustainable low carbon hydrogen projects has certainly risen up the energy agenda.  

A key factor in the basket of energy sources is the UK committing to build on its expertise and pilot programmes to produce up to 10GW of low carbon hydrogen production capacity by 2030. To facilitate meeting this target, in 2021, two UK Hydrogen and Carbon Capture (CCUS) clusters were identified, the East Coast cluster spread across Teeside and Humber and HyNet North West England and North Wales cluster. The Scottish Cluster based at St Fergus, Project Acorn, being placed on the reserve list.   

The Department for Business, Energy and Industrial Strategy has awarded significant amounts from the £240m Net Zero Hydrogen Fund to the three clusters to fund the front-end engineering and design (FEED) studies. The remainder of the funds being made available to fund capital and development expenditure for the deployment of the projects.  

As seen with the development of offshore wind industry, the UK can be an attractive proposition for investors. Together with Government support, a key to unlocking future investment is the continued investment from multinational energy companies, as they continue to pivot away from fossil fuels. bp, Shell, Equinor and Total have formed a partnership for the East Coast Cluster with Shell and Harbour Energy providing funding for Project Acorn with more expected to follow suit as the Clusters continue to progress. 

In terms of funding technology advancements, the announcement in June 2021 of the new UK Infrastructure Bank, with initial capital of £12billion, to provide leadership development of new technologies including hydrogen, particularly in scaling early-stage technologies that have moved through the R&D phase appears interesting.  

Like most large-scale projects, the cost of construction will have been impacted by rising labour and material costs, therefore, visibility of the quantum and timing of project investment and the expectation of having all the required elements of the supply chain in place at the right time are challenging. Only when certainty can once more be provided on projects will investors be able to seriously consider the opportunities. 

If you have any questions or would like any further information on the energy sector or energy transition, please don’t hesitate to contact Corporate Finance Director, Callum Gray, or any member of our Energy team.

Our accreditations