Member Article

Could a Research & Development Tax Credit Help UK Businesses Combat Soaring Energy Prices??

Ofgem’s energy price cap announcement has made clear that energy price hikes will hit consumers hard this year. Yet as the cost of fossil fuels continues to climb, soaring energy bills are likely to be just as devastating to businesses, at what has already been a difficult time for many.

Household bills are likely to jump by 50%, rising by nearly £700 for the average household. According to sources, wholesale gas prices have increased by 250%¹ since last January leading to price hikes across the entire energy market. Corporate energy bills too are rising at an unprecedented rate and the fact that the energy price cap does not cover small businesses means the impact is even greater.

A small business with an average annual electricity usage of 25,000kwh and gas usage of 30,000kwh, will likely see bills rise by up 200% based on January 2021, meaning it would rise from £5,118 to £10,236 with the changes coming into play. A medium-sized business could see bills grow from £9,437 to £18,946, based on a 50,000 KWH usage on electricity and 65,000kwh usage on gas.

In reality, prices could increase by an even larger percentage; and all of this comes at a time when many businesses are struggling to recover to pre-pandemic levels.

According to research by payments service NatWest Tyl, almost 65% of SMEs are spending up to one-fifth of their total business costs on energy consumption, while 8% of SMEs are spending a whopping 35-50% of their total business costs². And nearly 70% of small and medium businesses believe that energy costs impact their growth.

There could however be a ray of hope for business owners faced with unforeseen charges, especially those that have undertaken research and development projects in this or the previous financial year.

R&D Claims to Offset Energy Price Rises

The HMRC tax incentive scheme was set up in 2000 to help stimulate growth and innovation across the UK. The scheme is aimed at UK limited businesses from start-ups to established firms, with the potential to access a tax refund or tax credit for any eligible research and development work conducted.

The average claim for a small to medium sized business is £53,000, which would more than cover increasing energy costs.

Our average claim of £53,000 would cover electricity and gas usage for a small business for the next five years.

A medium-sized business (one with less than £50million turnover/250 staff), could offset the costs of energy for the next 33 months (two years and nine months) with the average sum of one of our R&D claims.

Any research and development project should make a business eligible, with the only stipulations being that the project relates to your company’s trade and evidence can be provided to show how it:

· Looked for an advance in science and technology. · Had to overcome uncertainty. · Tried to overcome this uncertainty. · Could not be easily worked out by a professional in the field.

The research/development phase is enough to qualify in most cases, with no rule to say the product or service must be finished or brought to the market.

Mark Joyner of Research & Development Specialists LTD (RDS), a specialist firm that helps business nationwide to navigate from the exploratory phase right through to successful claims of tens of thousands of pounds, said:

“Every business has felt the pressure of rising energy bills, including our own. Many companies have been in the position where they have had to use reserves or contingency funds to stay afloat during the pandemic, so now they’re completely exposed by the rising energy bills they face.

“What I love about what we do is that we are able to help business owners with a real cash injection into their business, which can then be spent on any business need. Whether that is on further investment to grow and improve the business or to cover unforeseen costs such as rising energy bills that could not have been predicted.

“Our sole purpose is to steer business owners through the process of a HMRC tax incentive claim, by making it as easy and straight forward as possible. Very often all we need is a fifteen-minute conversation to find out if a company is eligible and then we will do all the hard work from thereon in. We are completely transparent at every stage and ensure we limit the time demands on our clients leaving them free to complete their daily operations.”

Although there are different types of R&D scheme depending on whether you fit HMRC’s guide as being an SME or large company, eligibility to claim is focussed on the research project rather than the type of business. It is completely open to businesses in any sector. Typically, an R&D claim can be submitted for a business’s current and previous financial year.

This was posted in Bdaily's Members' News section by RDS .