Sustainability is currently a global concern across almost all industries. Taking action to improve it can help to protect the environment, whilst offering a whole host of business benefits, such as reduced energy bills and an enhanced brand image.
For businesses in the hospitality and leisure sector however, the initial cost outlay involved in improving sustainability can be a deterrent. What business owners may not realise is that by doing so, they might be able to leverage lucrative research and development (R&D) tax credits.
There is a common misconception that R&D tax credits are only available for work done in highly-technical industries, such as pharmaceuticals or engineering. This might be why claims made by businesses in the ‘accommodation and food’ sectors are so low – less than 1% of all that HMRC receives.
However, in truth any business that invests in projects that “seek to achieve an advance in science or technology… through the resolution of scientific or technological uncertainties” could meet the qualifying criteria. To increase their chances of an investment being eligible for R&D tax relief, businesses should make sure the technology or equipment being applied is attempting to overcome a recognised problem, for example reducing the business’ environmental impact. Whether the business is successful in this regard or not, doesn’t necessarily matter, it is the endeavour that is important.
A range of sustainability developments could qualify for R&D tax relief, such as new apps to help the business manage energy consumption, or the construction of green energy centres, used to convert biomass into energy. In fact, any developments of new technology or equipment used to improve efficiencies or to reduce waste/pollution could qualify under the scheme.
It’s not just efforts to increase sustainability that qualify. Other investments may also be eligible – for instance, hotels may uncover more opportunities surrounding the development of IT systems, such as online booking or accounts systems and e-commerce functionality. The tax credits generated by these investments can be extremely lucrative – for R&D costs of £100,000, profit-making companies will receive a total reduction in their annual tax liability of up to £46,000, while loss-making companies can claim a corporation tax refund of up to £33,350.
To file a successful claim, businesses will first need to make sure that they meet the eligibility criteria, something that expert advisers will be able to help determine. The next stage is to prepare a thorough R&D report, made up of two parts. The first should state the nature of the project or projects being undertaken by the business, why they qualify and how any uncertainties have been addressed. The second must include a summary of all costs related to the project. The report should then be submitted along with the company’s corporation tax return to HMRC and a response should be expected within 28 working days.
Once this process has been completed for the first time, the business can then put in place a strategy and a system to help capture information regarding any future R&D tax relief claims more efficiently. Recognising the benefits that the scheme can have, businesses may wish to invest in further sustainability measures, in the knowledge that all relevant information is captured, enabling them to do so as tax-efficiently as possible.
Small and medium-sized businesses should see the global drive towards sustainability as an opportunity. Investing in relatively small improvements designed to improve environmental standards, across different areas of operations, can deliver significant benefits by reducing the firm’s overall tax bill. Once achieved, this can become part of the culture of the business, enhancing its attractiveness to employees and customers, whilst optimising value from its investments.
Dave Gosling is partner and head of hospitality and leisure at accountancy firm, Menzies LLP
Read their latest white paper here.