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R&D tax relief can be a driver of sustainability

Author: Tom Mason

The overarching aim of the R&D tax relief scheme is to incentivise and reward investment in innovation and solutions to challenges.

In practice, this means that sustainable technologies or other innovations sit in prime position to receive R&D tax relief, but this is not a sector often talked about in relation to the scheme.

However, sustainable innovations are among some of the most cutting-edge developments in the R&D space and address an issue which affects not only a single sector, but wider society.

How, then, do you approach advising clients which are investing in green innovation?

Is it classed as R&D?

The wide-reaching definition of ‘sustainability’ and the urgency of achieving certain green outcomes means that innovation in sustainable industries often employ a mix of genuinely new ideas, products and processes, and improvements on existing ones.

Put more simply, there are a lot of ways to achieve sustainability in any number of sectors, including energy, materials and manufacturing, so certain innovations will inevitably overlap with one another.

To be classed as qualifying R&D for tax relief purposes, green innovation projects must:

  • Seek an advance in science or technology
  • Relate to the trade of the company carrying out the project
  • Overcome or try to overcome an uncertainty in the field
  • Not be obviously solved by another expert in the field

Projects must also include qualifying costs, such as consumables, trials and prototyping.

We can help you to determine qualifying costs and projects for each project and assess overall eligibility on a client-by-client basis.

Cost support – Loss-making innovations

Prioritising sustainability can mean that businesses must sacrifice profit maximisation and cost reduction in the first instance.

This can lead to loss-making enterprises which need additional support.

It’s important that any SME clients you advise are aware of the Enhanced R&D Intensive Support scheme if they:

  • Make a trading loss before relief is calculated
  • Dedicate at least 30 per cent of expenditure to R&D activities

In many industries, SMEs and new ventures are the driving force behind sustainability initiatives, so this Enhanced scheme holds particular value through a green lens.

R&D tax reliefs have the potential to incentivise green innovation and sustainable technologies, if used correctly and widely.

In advising your clients, you should ensure that they are fully aware of eligibility criteria for R&D tax relief and the additional support available to loss-making SMEs – and don’t forget, we can help.

For support advising your clients on sustainable investment and R&D tax relief, please contact our advisory team today to discuss your needs.