R&D Tax Credits 20th September 2017 How it Applies to You, Why You Should Claim Now, and How We Can Help

Index Introductions The R&D Tax Credit Programme Eligible Costs How The R&D Costs Are Calculated Eligibility Requirements Examples of R&D Activities in the Real Estate and Construction Industry. Kingston Smith’s R&D Tax Credit Methodology How Our Experts Can Assess Your Company’s Eligibility Within 15 Minutes What the R&D Claim Process Involves and How Much Time It Will Take Q&A 1 on 1 R&D Assessments of Your Company During Refreshments

Introductions – How Many of You Know of the Programme? How Many of You Have Heard About the Programme? How Many of You Know About R&D Tax Credits but have NOT claimed? How Many of You Have Claimed?

Introductions Continued – Industries Present? Architecture Construction Building System Civil and Mechanical Engineering Property Consultants Other?

The R&D Tax Credit Programme – Basic Eligibility Incorporated Business (Ltd or PLC) Subject to CT Not in Administration / Liquidation

The R&D Tax Credit Programme – Eligibility of Activities Technological Advancement Services, Design, Techniques, Formulas, or Prototypes (software if applicable) methodology changed or improved over the last few years? New equipment? New methodologies implemented for internal processes? Can you think 1 particular job or project that you did differently from the standard norm? Technological Uncertainty Has a trial, design, prototype, activity taken longer than one run or integration? How long did it take (weeks or months)? Has a project or work failed? How did the solution arise?

The R&D Tax Credit Programme – Calculation Methodologies 2 Methods to Claim: SME and RDEC 2 basic tests to meet the SME criteria 2 year filing requirement If you are SME: Salary costs Materials scrapped Third party costs and Externally Provided Workers Overhead for Power, Heat, and Lighting Software License Costs If you are Large and Claim RDEC: 1. All of the above but 3rd Party Costs

The R&D Tax Credit Programme – Calculation of R&D credits If SME and in losses: Before R&D Losses: £100k After R&D R&D Spend is 50k £65k after 130% enhancement Value of R&D Spend and Enhancement 115,000 Payable Credit at 14.5% is £16,675 Losses associated with R&D claim can also be carried forward to future years

The R&D Tax Credit Programme – Calculation of R&D credits If SME and in profits where R&D wipes of tax liability and additional losses results: Profits: £100k Taxes Paid: £20k After R&D R&D Spend is 150k £195k after 130% enhancement Tax Refund of £20,000 Remaining Losses of 95,000 Surrendered at 14.5% nets additional cash of £13,775 Total Benefit: 33,775

The R&D Tax Credit Programme – Calculation of R&D credits Claiming RDEC: 7 step process to cash Key thing to remember is that a company obtains 8.8% of its R&D spend as a tax benefit 100k in R&D results in £8,800 benefits SMEs can claim under RDEC if funded work has been undertaken (state aid relief, or other forms of funding received)

The R&D Tax Credit Programme – Types of Eligible Activities Construction / BIM: Development of new and improved construction methods, techniques and equipment to achieve improved efficiencies or performance Development and validation of new principles for structure and facility design for constructability Materials science in relation to adaptation of new materials under new conditions or via new construction methods New techniques for meeting green building requirements, including incorporation of alternative construction materials, alternative construction methods, new models for achieving net zero carbon footprint Building Information Modeling (BIM) for sub-system coordination, via development of new technologies/methods for control and integration Analysis/modelling/testing of the functions of a design directed at improving performance, reliability, quality, safety and/or life cycle costs New principles for HVAC or electrical system design to meet unique constraints which current best practices do not address

The R&D Tax Credit Programme – Types of Eligible Activities Architecture: Developing unique energy efficient features, including theoretical modelling and long term data collection/evaluation of such Developing unique structural strategies for meeting project requirements, including theoretical modelling and long term data collection/evaluation of such Developing designs incorporating non-standard construction materials and methods to enhance building performance, save costs, etc. Design and evaluation of non-standard solutions to unique project/site constraints, such as: spatial/orientation constraints, cost constraints, constraints on materials that can be used, site features constraining access, etc.

The R&D Tax Credit Programme – Types of Eligible Activities Civil Engineering: Non-standard approaches to bridge and roadway design to meet unique structural and drainage requirements, or achieve increased lifespan/performance Developing innovative lateral force resistance systems for buildings New techniques for foundation and earthwork design for unique site conditions New approaches to water treatment plant design to increase plant capacity or efficiency Innovative wastewater processing technology development Design of renewable energy infrastructure via new or improved technological implementations to enhance efficiency Unique techniques for designing water pipelines and ancillary systems to overcome project constraints New techniques for hydrology modeling used to determine water flow within a site New approaches to the design of seismic infrastructure and retro-fitting to improve seismic resistance or reduce costs

The R&D Tax Credit Programme – Types of Eligible Activities Engineering: Development and evaluation of alternate materials with which to construct a structure or parts of a structure Development and evaluation of alternate means of assembling and/or fastening component parts of a structure (must be a new concept to the taxpayer) Development of new techniques for improving acoustical qualities of structure Development of new techniques for improving or developing alternative ventilation for a structure Development of new techniques for improving or determining alternative heating and cooling systems Developing new processes or equipment for the extraction of natural elements from another substance, or the development of processes and equipment to convert the extracted materials Toxic waste and other waste disposal processes integrated into the structure Integrating product and material transportation systems into the functional design of the structure

The R&D Tax Credit Programme – Types of Eligible Activities The following types of activities, carried out in direct support of an eligible project and in order to achieve an advance in science or technology, can be claimed: Scientific or technological planning activities in relation to the project Design (site design, systems design – i.e.. electrical, HVAC, etc., design of construction methods). Any design activities directly in support of evaluating a particular hypothesis as part of the attempt to resolve a technological uncertainty are qualified. Testing (lab testing, site testing, computer modelling as a means of test, data collection from specific tests) Analysis (data analysis, results analysis, evaluation of results, formulation of next steps in research)

The R&D Tax Credit Programme – Types of Eligible Activities Software within Your Business: Developing new or improved technological implementations of software tools and techniques to achieve functional goals (appreciable improvements should be focused on underlying implementation of technologies rather than software functionality) Conducting requirements, domain, software elements, or scope analysis for a new functional software enhancement requiring an appreciable improvement to the technological implementation (e.g. to address performance/scalability/integration/compatibility requirements) Developing modelling tools to be used in evaluating hypothetical solutions in other domains, as an eligible supporting activity Establishing non-standard electronic interfaces and functional relationships between various software modules Programming and compiling software source code to study/test a new implementation strategy Conducting unit, integration, functional, performance, and regression testing to evaluate a new implementation strategy

R&D Methodology The Peer To Peer Approach: We approach R&D claims from a Science & Technology perspective with industry experts supported by accounting staff. We work to maximise the claim We minimise our clients’ time and keep their involvement to interviews and discussions; 45 minutes of discussion time weekly over a 4 to 6 week period.

R&D Methodology Identify eligible R&D projects. Prepare documents describing R&D projects, and how R&D projects meet the eligibility criteria. Identify R&D costs and relate to eligible projects. Prepare detailed R&D cost schedule. Meet with key scientific technical and financial personnel to review the R&D claim and complete KS checklist to ensure the claim is maximised and complete. Prepare R&D corporate tax forms. Participate in HMRC review subsequent to filing. Recommendations and implementation on how to set up a system to identify, capture and document eligible R&D.

R&D Case Study and HMRC Engineering Company Staff of 100 Claimed 40k internally on a cost based project Kingston Smith Methodology Project by project approach Increased claim annually to 230k

Common Errors Discovered By KS R&D projects not identified at the right level. Activities and costs missed. Costs don’t relate to R&D project activities. Procrastination resulting in either missed filing deadline or rushing through claim; not taking the time to file properly. Expenditure outside the qualifying categories. Staffing costs are claimed in respect of people who are not employees of the company. Claims are made in respect of overheads that do not qualify as consumable items or consumable stores. Companies do not recognise they are not SMEs. Unconnected sub-contractor expenses are not restricted to 65%. Following correct R&D claim delivery procedures

Key Stats Released From HMRC 2015-2016 Submissions Total number of claims for R&D tax credits rose to 26,255, an increase of 19% The increase was primarily driven by a rise in the number of SME claims, which totaled 21,865 The total amount of R&D support claimed rose to almost £2.9bn in 2015-16, an increase of £470m R&D claims and the amount claimed is concentrated in companies with a registered offices in London, the South East or the East of England (46% of all claims and 62% of the total amount claimedExpenditure outside the qualifying categories) The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 73% of claims

Why Claim Now? HMRC – New Developments Making Submission of Claims Tougher 2 year filing deadline coming up? Brexit? How do I know if I qualify for these credits?

Do I Qualify? The 15 minute Assessment Process No prior preparation of you is required We can determine your R&D eligibility discussing your business Website review Advise what is eligible Determine your estimated range of tax benefits No key technical prime / staff member from your company will be required for the assessment

Questions? Thank You for Your Attention!