31 July 2019

HMRC R&D tax credits, innovation and plastics pollution

As the Government comes to terms with the turning tide on plastic pollution with the first reading of a private members’ bill on the subject, HMRC tax incentives for innovation could support a step change in such pollution.

So not only is there the opportunity for companies to gain competitive edge by taking account of the shift in public opinion, they can also, in some circumstances, access tax relief whilst doing so.

Research and development (R&D) tax reliefs are only available for companies and can provide corporation tax savings of over 40% for small to medium enterprises, or over 30% cashback on expenses, where companies are loss-making.

Qualifying for such relief is not necessarily straightforward. Activities must relate to a project which represents an advance in science and technology, consistent with Dept for Business, Energy and Industrial Strategy (BEIS) guidelines and that advance must be in the global state of knowledge (not only the knowledge of the company).

Whether an activity constitutes that kind of advance would be tested by a hypothetical competent professional in the field – and if resolution of the uncertainty is obvious or can be readily established by such a professional, then the activity will not qualify for R&D. But the global state of knowledge and the competent professional’s knowledge is limited to published or publicly available information, which arguably lowers the hurdle in some respects.

Significant changes in the quantity or nature of plastic products, or indeed the development of innovative alternatives, have the potential to satisfy these objectives, offering real tax advantages to those creating new and innovative materials to support the bill’s objectives. The bill, sponsored by Alistair Carmichael, MP for Orkney and Shetland, which passed its first reading aims to set targets to reduce plastic pollution and require the Secretary of State to publish a strategy and annual reports.

Accessing R&D tax credits incentives may be complex but they are potentially available to any innovative company with projects which represents an advance in science and technology of any kind, not just in the plastics arena, and we are happy to advise – please get in touch with Sarah Woodall on 020 3375 8301 or on SWoodall@hcrlaw.com.

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About the Author
Sarah Woodall, Head of Tax, Partner (Barrister)

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