The CleanTech industry – or products and services that reduce negative environmental impacts - is among the UK’s fastest-growing sectors, currently valued at over £120bn.
This sector of R&D is stepping into the spotlight amidst the current COP26 summit, where world leaders are coming together to take action against the climate crisis.
Advances within CleanTech rely on the innovation of novel technology, making it a gold mine for R&D incentives. Many CleanTech startups are highly eligible for R&D Tax Credits, and yet only an estimated 10% of qualified firms are claiming.
To help further spur the transition to renewable energy and more sustainable living, we want to spread the word about R&D Tax Credits and how they can help fund CleanTech Research & Development.
What are R&D Tax Credits?
R&D Tax Credits were introduced to offer financial reward for innovation that’s previously taken place. After their first financial year, R&D Tax Credits allow startups and SMEs the chance to claim back up to 27% of R&D expenditure that was used to build their project.*
This generous financial incentive opens the door for game-changing re-investment into the growth of your CleanTech product or service. Better yet, every penny you receive back is guaranteed upon approval, non-dilutive and non-repayable.
That’s right, you can raise funds without racking up interest or sacrificing equity. Two schemes make up the R&D Tax Credit process.
The first, and more popular scheme is the SME Scheme. This route is aimed at companies with:
Less than 500 employees;
Less than $86M in gross assets;
Less than $100M in turnover.
Within this, your business’ financial position at the time of filing determines how much money you can claim back.
Loss-making companies are entitled to claim up to 27% of total R&D eligible costs, which is paid directly, in cash, into your bank account.
Alternatively, profit-making companies can be awarded up to 21.5% of total R&D eligible costs, this time in the form of a tax credit.
Exceeding the metrics of the SME Scheme makes you eligible for the RDEC Scheme, which allows 20% of R&D costs to be reclaimed (subject to corporation tax).
Examples of R&D within the CleanTech sector
By definition, Research & Development (R&D) refers to activities that seek to achieve scientific or technological advancement, involving the resolution of scientific or technological uncertainty.
In general, R&D expenditure that is eligible to be reclaimed through R&D Tax Credits consists of:
Royalties;
Expenses deductible for trading purposes;
Plant and machinery entitled to capital allowances;
Revenue and capital expenditure on scientific research;
Buildings entitled to capital allowances.
These categories are extremely broad and cover the breadth of all R&D sectors. Focusing specifically on CleanTech, qualifying R&D could include:
Development of a processing facility to provide alternative, low-emission fuels.
Development of a renewable energy system to operate in extreme environments, such as marine or high temperature.
Scale and advance the process of carbon capture and storage.
Increasing energy plant production using the same or less input materials or resources.
Reutilising existing reserves to reduce waste.
Development of greywater recycling systems.
R&D Tax Credits propel sustainable innovation
When it comes to developing environmental solutions, products and services cannot rely on existing technology. The nature of CleanTech forces founders to totally re-envision energy processes from a sustainable perspective.
What’s more, this experimentation can be extremely labour intensive. These two factors suggest that CleanTech R&D entails frequent and substantial tax relief.
If you’re still unsure on how R&D Tax Credits can directly impact CleanTech, let’s run through an example:
You’re in the process of developing a bio-degradable plastic alternative. Over the past financial year, the experimental process has set you back £60,000. As your product hasn’t reached the market yet, you’re in the loss-making phase. By filing an R&D Tax Credit Claim, you can reclaim up to £19,800 worth of qualifying costs. You can use this cash boost to fund further development and help you optimize your product, faster.
R&D Tax Credits provide a financial safety-net through the unavoidable trial-and-error process of sustainable innovation.
This government incentive is perhaps more valuable here than in any other sector, so we want to make sure that every eligible CleanTech R&D project is receiving the funding it’s entitled to.
Our R&D specialists at Claim Capital are experienced in assessing tax relief eligibility, and the scope and size of your claim. Moreover, we know exactly how to secure every penny possible from HMRC.
Claim Capital frequently uncovers that prior to working with us, clients have been claiming only a fraction of their eligible costs.
If you think you could benefit from R&D Tax Credits, or suspect any inaccuracies in your previous claims, get in touch with one of our experts.
*These are the updated figures in line with the new legislation announced in the April 2023 Spring Budget.