Dave Gosling – H&L specialist
Sustainability is an increasingly important concept within almost all industries worldwide. Improving it can not only help to protect the environment, it can also offer several benefits to a business, such as reduced energy bills or an enhanced brand image.
Perceived cost of sustainability
Within the hospitality and leisure sector, businesses are often discouraged by the initial costs linked to sustainability improvements. However, business owners might not be aware of the significant research and development (R&D) tax credits that could potentially flow from these investments.
Who can claim R&D tax relief?
Less than 1% of all the R&D claims HMRC receives are made by businesses in the hospitality sector. The reason for this incredibly low number of claims might be the mistaken belief that R&D tax relief is only available to highly-technical organisations such as pharmaceutical or engineering businesses.
However, this could not be further from the truth. In reality any business could meet the qualifying criteria when investing in projects that “seek to achieve an advance in science or technology… through the resolution of scientific or technological uncertainties”. The success of these projects is not exactly a benchmark for the eligibility for R&D tax credits. In order for their claim to be accepted, it is important that the business applies technology or equipment which tackle an identified issue and try to overcome it, such as new energy consumption managing apps, green energy centres converting biomass into energy, etc… The list of possibilities is endless, in fact, any new technology or equipment developed to increase efficiency or reduce the business’ ecologic footprint could qualify under the scheme.
R&D tax relief is not only for sustainable improvements
On the other hand, investments other than sustainability improvements might also be eligible. Online booking or accounts systems and e-commerce functionalities are some examples of IT system developments which could open new opportunities for hotels and other hospitality and leisure businesses. These specific efforts can generate remarkably lucrative tax credits, with annual tax liability reductions up to £46,000 for profit-making companies and £33,350 for loss-making companies when spending £100,000 on R&D.
What makes a successful claim?
The first step to a successful claim is, with the help of an expert adviser, determining whether all eligibility criteria is met. Afterwards a thorough R&D report should be created, existing of two sections. The first should contain the type of project(s) being undertaken, why they qualify and how the business has addressed any uncertainties. The second must provide a summary of all project related costs. This report, along with the company’s corporation tax return, is then submitted to HMRC and within 28 working days, the business should be informed on the success of their claim.
Preparing for future claims
After reaping the benefits, businesses may be more inclined to tax efficiently invest in further sustainability measures. Therefore, when completing this process for the first time, it is advisable to put a strategy and system in place to accurately capture R&D related data in order to simplify future claims.
Small changes can make a big difference
By investing in rather small environmental standard improvements across various areas of operations, small and medium enterprises can reduce their overall tax bill significantly. For this reason, the global drive towards sustainability should be seen as an opportunity. Making sustainability part of their culture allows the business to optimise the value from its investment while also boosting its attractiveness to employees and customers.