Mounting pressure from consumers, regulators, and investors has changed businesses considerably, driving companies toward more sustainable practices. What once seemed like an optional corporate responsibility initiative has now become a competitive necessity.

But rather than view this as an added expense and burden, this shift can be seen as an extraordinary opportunity to innovate, differentiate your company in the market, and potentially reduce your tax burden significantly.

Enter R&D tax credits: a powerful yet often underutilised tool that can help East Lancashire businesses fund their contribution towards net zero. These government incentives are specifically designed to encourage innovation, and as environmental challenges require innovative solutions, businesses investing in green technologies and processes can often claim substantial tax relief.

What counts as “R&D” in the green economy?

Many business owners mistakenly think R&D tax relief is reserved for companies with high-tech facilities and teams of scientists. In reality, the range of activities that can qualify is much broader and more practical than most entrepreneurs realise.

Cooden, R&D tax credit specialists, explain that

“R&D refers to work that you do to attempt to solve a problem for the field as a whole. This must be in either a scientific or technological pursuit. And you don’t need to show that you can come up with a working solution to the problem, only that you carried out work attempting to do so”.

Sustainable construction materials or techniques, smart energy management systems, and low-carbon manufacturing processes across a host of industries all count, and could form the foundation of a successful claim.

For example, a manufacturer working on a more energy-efficient production line to cut down their electricity use and lower their carbon emissions could be eligible. The same goes for a packaging company that’s developing sustainable materials or biodegradable alternatives to replace traditional packaging. Even projects focused on reducing waste or developing circular economy solutions can qualify. So, if your business is making progress in these areas, there’s a good chance you could benefit.

Naturally, integrating renewable energy sources into your business premises also qualifies for R&D credits in many cases, provided they involve genuine scientific or technological uncertainty. This might be in the form of using solar panels to power machinery, converting organic waste into biogas, or piloting electric vehicle fleets and installing on-site charging infrastructure. Each of these changes relies on overcoming technical challenges and shows genuine innovation in terms of sustainability.

How to claim your R&D tax credits

Since April 2024, the old SME and RDEC schemes have been rolled into one combined R&D scheme. In practice, not much has changed in terms of how you apply or the way relief is calculated.

There is, however, still extra support in place for “R&D-intensive” SMEs—those spending 30% or more of their total costs on qualifying R&D. These businesses can access an additional top-up, giving them a higher rate of relief. For most companies, though, claims will now fall under the single merged scheme.

Gathering the right evidence

The first step in making a claim is working out which projects qualify and what costs you can include. Good record-keeping makes this much easier. Ideally, you should keep:

• clear project notes and technical documentation
• timesheets that show which staff worked on R&D activities
• invoices for equipment and materials

Trying to pull this evidence together after the fact is often much harder, so it pays to track everything as you go. When you submit your claim, you’ll also need to explain the challenges your business was trying to solve, the approaches you used, and the resources you put into the work.

Why professional advice helps

Many companies find it worthwhile to work with an experienced R&D specialist. These advisers understand how HMRC looks at claims and can often identify activities or costs you might not have thought about or didn’t think would qualify. They’ll make sure your application is structured properly and backed up with the right evidence. What’s more, an adviser can help you set up efficient systems for keeping track of your R&D activities, so future claims are much easier to manage.

The beauty of this opportunity lies in its accessibility. Your company doesn’t need massive research budgets or dedicated research departments to qualify, and often, the innovative work businesses are already doing to improve their environmental performance qualifies for substantial tax relief.

The message for SMEs is clear. Using R&D tax credits to fund sustainable innovations can help your business reduce its tax burden, improve environmental performance, and build competitive advantages that will serve you well in an increasingly eco-focused market.

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