How companies will have to technologically innovate to achieve net-zero
We look at how companies can achieve net-zero and how R&D tax incentives can drive innovation sustainably. We spoke to FI Group’s Alastair Hall & Félix Chermette to explore the subject of R&D tax incentives to assist in meeting net-zero goals.
Alastair Hall, Sales Director, has 10 years of experience in sales, the majority of this in R&D-related funding. He joined FI group in December 2020 to lead the UK. Our second speaker, Felix Chermette, Innovation, and Sustainability Consultant, has a background in aerospace and mechanical engineering. He has used this experience and knowledge in the industry, focusing on low carbon technologies in the maritime sector. Originally joining FI group in its France R&D technology and grants department, he moved to the UK group a year and a half ago.
the best technological developments for businesses to push for net-zero in 2022
There are many ways to push for net-zero, generally, methods concentrate on increasing the energy efficiency and decarbonizing the industry, and services. This is mainly to cut down on green greenhouse gas emissions through the use of technological developments such as new hydrogen compatible technologies.
One not many businesses consider is to start “internally promoting internal R&D and innovation, whether that’s things like increasing resilience, raw material consumption or moving towards circular economy practices.” Chermette comments.
Many of these technologies require major capital investments in sustainable R&D from businesses. Though many companies can save money through upgrading in this area, a popular example is the tracking of carbon emissions throughout a supply chain using various sensitive technologies and the latest software developments. AI programs can play a key role here in terms of not only optimizing supply chain emissions but also greatly improving efficiency.
Businesses save money using tax incentives through sustainability projects
HMRC defines R&D as projects where a significant advance or new developments are engaged. This happens through significant technological advances, surpassing many obstacles during development. The variety of projects included in this is much broader than many expect. An example given by Chermette is “new packaging to try to improve the shelf life of various condiments.”
So many projects fall into the category of R&D, these are then a great tool for companies to get investment. Companies that are investing in sustainability projects can receive funding, tax credits whilst looking impressive to investors.
Who would best benefit from these incentives?
There are two main schemes to this incentive; one aimed towards large companies and or companies that have benefited from grant funding. This is called the Arctic scheme and behaves as a sort of top-of-the-line profit and directly impacts the earnings before interest, taxes, depreciation (EBITDA) of the company.
The second scheme is dedicated towards SMEs where the total benefit varies, depending on the profit and loss position of the company. Chermette notes that “SME’s that are heavily investing in research and development but are not market-ready and so in pre-commercial or early commercial stage, will generate regular cash returns and tax credits through a scheme like this.”
R&D innovation in the near future. what should companies be expecting of the next few years?
2021 was a very big year in the world of research and development funding; two key things happened “UK government released their UK innovation strategy, which will determine R&D funding up until 2035.” Hall informs us.
There were also notable changes made to the R&D scheme from 2020, making the technical side of the claim compulsory. The tax is going digital and any costs, which are spent outside of the UK will no longer be eligible for the UK-based R&D tax credits. “It is clear that government is trying to create an ecosystem in the UK” Hall comments.
Hall continues “My advice would be to pick the right location for the right knowledge to do the right R&D on your sustainability and do that in the background, knowing the different R&D options globally to use tax incentives.”
Companies overseas face more difficulties claiming R&D tax
A global player in R&D tax relief, FI group plays a role in helping companies understand how to structure their business. Not simply, to advise on just UK-based legislation but to help companies understand their options so they can get the optimal structure of R&D globally. “So if we take some companies who invest time into building AI technologies for farming, to help them go more sustainable, they may adopt a model where they have developers in London, but they’ve also got a development team based out in Spain or Italy or France.” Hall informs.
Beyond providing sort of an extra stream of return on investment, R&D is invaluable when it comes to the future of our planet and developing long-term strategic investments, such as net-zero commitments.
If you would like to listen to the entire interview, this is available as a podcast, here, and also on Spotify.
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