R&D Tax Credits 20 th September 2017

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

2. 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

3. 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?

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

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

6. 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?

7. 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

8. 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

9. 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

10. 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)

11. 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

12. 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.

13. 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

14. 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

15. The R&D Tax Credit Programme – Types of Eligible Activities

16. 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

17. 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.

18. 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.

19. 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

20. 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

21. 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

22. 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?

23. 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

24. Questions? • Thank You for Your Attention!