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Unlocking the Potential of Sustainable Technologies: How R&D Tax Credits Can Pave the Way

April 3, 2023

Danielle Wallis
Marketing Manager

As we strive to achieve a net-zero transition by 2050, businesses worldwide are embracing strategies to combat climate change, resource depletion and environmental degradation. Innovation in sustainable technology is a key factor, offering transformative solutions to the way businesses improve their operational and environmental efficiency.

Many companies may feel burdened with the responsibility of reducing their carbon footprint for the net zero agenda. Meanwhile, the potential advantages that come with embracing change are currently lost in translation. Investing in sustainable technologies will futureproof companies, but high upfront costs remain a bottleneck. In the long run, however, these technologies can help companies to achieve lower overall operating costs. Therefore, companies that do choose to make changes not only contribute to a better future for our planet, but also gain a competitive advantage.

Technological innovation has the potential to reduce the cost of capital for net-zero technologies faster than expected. Many entrepreneurs are willing to invest in the development of sustainable technologies, with a Mckinsey report estimating that the net-zero transition between 2021 and 2050 would require a capital spending of approximately $275trillion. However, the costs and risks associated with research and development(R&D) in sustainable technologies are undoubtedly daunting for many. This is where R&D tax credits can come in.

 

R&D Tax Credits and Sustainable Technologies: A Winning Combination

R&D Tax credits are government-provided incentives that reward the innovation efforts of companies. Though this incentive is not limited to sustainable technologies, encouraging the prioritisation of sustainability is an area of strategic importance. R&D tax credits, therefore, play a crucial role in incentivising investment in sustainable technologies and initiatives as they help companies offset the considerable costs associated with R&D activities in this field. Take the CleanTech industry in the UK, for example. Currently valued at over £120 billion, this rapidly growing sector focuses on developing products and services that minimize environmental impact.

SMES and start-ups can benefit from R&D tax credits, as well as large companies, which will benefit even further this year with an increase of the rate to 20%. Many notable companies have already leveraged R&D tax credits to create innovative sustainable technologies. For instance, the famous beverage brand Coco-Cola has invested in PlantBottle technology, using renewable materials to create fully recyclable bottles. Also, Tesla used R&D tax credits to develop its electric vehicles, revolutionizing the automotive industry and reducing dependence on fossil fuels. Here are some more companies that have leveraged the UK R&D Tax Credits scheme for sustainable technology development:

•             Econic Technologies - a company that uses waste carbon dioxide as a feedstock for the production of sustainable polymers.

•             Carbon Clean Solutions - a company that develops and commercializes technology to capture carbon dioxide emissions from industrial processes.

•             Oxis Energy - a company that develops and manufactures high-performance lithium-sulfur batteries for electric vehicles and energy storage applications.

•             E-Leather- a company that develops and manufactures a sustainable alternative to leather made from recycled leather waste.

•             Bio-bean- a company that recycles waste coffee grounds into biofuels and biomass pellets for energy generation.

 

The Advantages of R&D Tax Credits

R&D tax credits widen the possibilities, proving beneficial to companies that see their growth as an extension of environmental development. Let’s take a closer look into the benefits:

Significant Cost Savings: By reducing a company's tax liability, R&D tax credits enable businesses to reinvest savings into research and development or other operations.

Improved Cash Flow: Companies can claim tax credits for R&D expenditure from the previous fiscal year, resulting in a considerable increase in cash flow, which can fund ongoing projects and initiatives.

Boost to Innovation: With more resources available for R&D activities, companies can create new products and services aimed at addressing various environmental challenges.

Competitive Advantage: Enhanced product performance, a more relevant line of services, cost reduction and a focus on sustainability lead to improved customer satisfaction and increased competitiveness.

 

Best Practices for Applying for R&D Tax Credits

Applying for R&D Tax credits can be a challenging process. Here are a few best practices to maximise your success and ensure your compliance.

Go through the Eligibility Criteria: Criteria may vary by country and region. Eligible R&D tax credit activities typically involve a systematic and investigative approach to solving technical challenge sand include disruptive methods and technologies. Ensure you understand the guidelines before starting your claim request.

Maintain detailed records: Keep a thorough account of your R&D expenditures and activities. This involves clear and concise documentation of the purpose, scope, and research outcomes. This is an essential step to present your eligibility and ensure easy compliance checks.

Ensure compliance: Adhering to all relevant rules and guidelines is necessary to be eligible for acquiring credit. Non-compliance may result in reputational damage and severe penalties.

Collaborate with academic institutions: Partnering with academic institutions while seeking R&D tax credits can help companies showcase their research and technological advancements, serving as validation for their work.

Seek expert advice: Tax experts can be invaluable in helping you navigate the application process and understand compliance and eligibility guidelines.

R&D Tax Credits: Fuelling the Future of Sustainable Innovation:

R&D tax credit offers a safety net from the unavoidable experiments of sustainable innovation. Governments worldwide are recognising the importance of sustainable innovation, and R&D tax credit serve as a valuable tool for businesses looking to invest and tackle environmental challenges. By providing tax support and relief to eligible businesses, such credit programs incentivise innovation, driving growth while ensuring environmental sustainability. They are particularly beneficial for SMEs seeking significant expense reduction, and they also support larger companies in pursuing their ambitious goals.

As individuals and organizations, we are responsible for the environment we inhabit. To futureproof your company, whilst securing reduced operating costs and increasing your environmental efficiency, it's time for you to take advantage of R&D tax credits and join the movement toward sustainable growth and development.

At Inventya, we understand the need to devise the right strategies and secure funding for your research and development activities. If you would like our help navigating the application process for R&D tax credits, feel free to contact our R&D Tax Credit Team. Call us on 01925 506100, or send us an email at info@inventya.com with your query. We're here to support you in pursuing sustainable innovation and making a positive impact on the environment. Together, let's work towards a greener and more prosperous future.

April 4, 2023
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