Many UK design businesses could become eligible for substantial tax relief on their work, a landmark claim by Nissan Design Europe has shown.
The company has won a tax relief claim for design work dating back two years, using the research and development tax credit system. The move is worth ‘hundreds of thousands of pounds’ to Nissan and points the way to millions of pounds of potential claims from the design industry, says David Godber, director of the Japanese car manufacturer’s London design studio.
Godber has spent 12 months working with accountant Deloitte to show that design process costs can be eligible for tax relief. He claims the company is the first ‘to tangibly demonstrate that design businesses do undertake R&D’, which qualifies for relief.
Nissan and Deloitte consulted with HM Revenue & Customs to examine the wording of the R&D tax credit guidelines and to explain to inspectors how the design process frequently involves innovation – or an attempt to innovate – even if there is no resulting product.
‘This is the least claimed and hardest to understand tax credit you can go for and designers don’t understand that they are solving these kind of problems and that they’re entitled to claim,’ adds Godber. ‘But the language of a claim needs to be carefully thought out. You’re very likely to fail if you can’t convince the inspectors.’
HM Revenue & Customs has established dedicated units to promote and aid the R&D tax credit process, following the recommendations of Design Council chairman Sir George Cox in last year’s Cox Review. Cox recommended that the definition of R&D should be extended to cover all areas permitted under international standards, but rejected an extension to specifically include design. He said/ ‘[Design] affects strategy, processes, systems, products, marketing and communication. To isolate the costs associated with “design”, to the accuracy necessary for a tax claim, would be a nightmare for all but accountants.’
But Godber, who assisted Cox on the report, believes that Nissan’s claim is a test case that could be used to educate designers on how to benefit from the system. Nissan Design Europe is now working with the Design Council to present its findings to the industry.
R&D TAX CREDITS:
• Introduced to promote greater spending on R&D and innovation
• Design work can be eligible, but most remains unclaimed
• HM Treasury intends to extend relief to larger companies (250-500 employees), following Cox Review recommendations
• For more information see: www.hmrc.gov.uk/randd