Accelerating manufacturing digitalisation
through the right Government support

 


July 2020
Read time: 4 minutes


According to our Digital Transformation Report, the number of large manufacturers planning to spend £5m or more on digital transformation has doubled in the last three years.

But now a worsening economic outlook makes it more important than ever to take full advantage of government grants and tax rebates for research and development (R&D) involved in digitalisation programmes.

To make sure you don’t miss out, we spoke to BDO experts Hervé Mottais, a director heading the grant service line in BDO’s innovation and technology group, and Jonathan Saliba, who heads the group’s manufacturing and engineering sector team. 

 

 

 

 

 

 

What public funding can manufacturers receive from Government or local councils to digitalise processes?

Hervé Mottais: Public funding is available in the form of rebates on corporation tax, and subsidies for businesses.

A key public funding tool that companies can leverage is R&D tax relief and development tax credit, which incentivises companies to invest in projects that improve existing products and processes. Digital transformations might fall under this particular type of projects.

It’s not an insignificant rebate. If you are a small-to-medium-sized enterprise, you can go up to 33% of your development cost. If you’re a large company, you might go up to roughly 10%, net of tax.

On top of that, there are other government programmes and incentives to help companies go through a digital transformation.

Across England you have the local enterprise partnerships, and elsewhere Scottish Enterprise, Invest Northern Ireland and the Welsh Government offer support packages worth up to 50% of project costs or £150,000, subject to availability.

Finally, Innovate UK offers grants of up to £2m or 70% of a project cost.
 

What is the difference between grants and R&D tax credits and how do they complement each other?

Hervé Mottais: When it’s a subsidy you apply for it and then you have to wait to see if you’ve been successful before you start your project. This is very different from a tax rebate, where you’ve already done the work and you’re just claiming at the end of the year.

Grants are very competitive, so it’s not like every digital project would be eligible for that type of funding. You need to have an element of novelty. You have one shot, but the rewards can be significant.

The application form itself is usually very concise and has a lot of restrictions in terms of formatting, so you need to make applications factual and compelling.
          

Jonathan Saliba: For tax rebates, there’s a set of technical criteria the Government has put in place. As long as your project satisfies those criteria, then you should be able to claim aspects of those costs.

It is a good idea to get expert advice for both grant applications and R&D tax credit submissions, since in up to 50% of cases you may be able to get more money than you thought at first.
 

Can I get funding support for existing software systems?

Hervé Mottais: Imagine you’re trying to automate different machines. Each machine would have a software driver, a specific program which is proprietary. To integrate that with a central software system would require experimentation.

It’s not a matter of browsing the internet to find the answer. You have to go back and forth and test different approaches. That experimentation is what we would claim as part of our process, because that’s where companies gain knowledge that was not in the public domain.


Jonathan Saliba: Even if two factories are similar, if they have no reference to each other’s learning points they are each eligible to claim. Companies may be eligible to claim as long as there isn’t any published documentation.
 

What can I do to ensure I fully benefit from these Government incentives?

Hervé Mottais: First of all, try to seek expert help wherever you can. It’s important to get advice to ensure you have a full understanding of whatever guidance you’ve got from HMRC or on grant applications. It’s also important to keep records of projects, even if it’s rough notes.

This gives you something to refer to and provides a point of reference at the end of the year. Timesheets are not compulsory but having an idea of how much time you’ve spent on projects is always useful.

They certainly help to maximise claims, because when you’re not sure of the time you’ve spent on an activity you will tend to underestimate it. If you have a record, then that can give you the confidence to claim more.

In general, tax and finance teams need to liaise with the technical team. It’s the technical team that will be able to determine whether R&D has taken place in the project.
 

Can you provide an example of how a manufacturer might improve its level of support?

Jonathan Saliba: We have worked with a second-tier automotive component manufacturer that works with varying degrees of ink and different types of plastic. Before, they only used to claim for designing new products.

We went in and instead of claiming for additional designs we claimed for a lot of the increase in automation at the company, which now covers 80% of the manufacturing process. We also claimed for a lot of the process enhancements.

Many companies focus on product-specific claims and never focus on process improvements or any process-specific projects.

Sometimes these are seen as routine because you’re making small changes to processes to make them more efficient, but a lot of that tends to end up being qualifying work.
 

Hervé Mottais: The extra amount you can claim could be massive. Imagine you have factory trials where it’s not just a few designers’ time spent but 20 operatives working for several hours, plus the waste in material during the trial.

You can sometimes double or triple claims by considering manufacturing processes. It really depends on how many people the company is throwing at the project. The bigger the company becomes, the bigger those teams are.

 

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