By leading the charge on the development of technologies that will tackle climate change, Scottish companies can also benefit from the UK Government’s  R&D tax credit scheme which makes generous rebates available for legitimate businesses. By Nan Spowart

SCOTLAND could be at the forefront of developing technologies to help save the planet from climate change – and a government tax rebate scheme could play a key role.

That’s the message from Stephen McCallion, CEO of XI Energy Ltd, which has a focus on decarbonisation and the production of clean energy fuels.

He is also the founder and CEO of ZLX Business Solutions which helps companies make sure their application for Research and Development (R&D) tax credits are compliant with the rules.

The R&D tax credit scheme was launched by the UK Government in 2000 to promote economic growth by encouraging businesses to invest in researching and developing new technology.

However after it was discovered that the scheme had been the target of fraudulent claims, the rules were tightened up. This, Mr McCallion said, should not deter genuine companies from applying for the rebates.

“The scheme, when used properly, is fantastic and it should definitely not be axed because of a small minority of people abusing it,” he said. “It is also important that genuine companies do not stop claiming,” he said. “A lot of companies do qualify but they need to make sure they fill out their claims properly.”

Mr McCallion added: “It’s worth emphasising that the research and development of renewable and clean fuel technologies, in particular, will benefit the planet so it follows on that the R&D scheme is an encouragement for companies that are effectively using these technologies to help everyone.

“For example, we see this country as being a major exporter of hydrogen and potentially sustainable aviation fuel. Scotland could be at the forefront of this and the rebate scheme could help that - but only if claims are compliant. It is important for businesses to make sure they get the experts they need to help so they get their R&D rebates.”

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It is also worth pointing out that HMRC has the power to not only fine companies that make false claims but also genuine applicants who fail to follow the rules when making a claim.

This means that companies may lose out on the rebate and, even worse, be fined up to 100% of the amount they have claimed.

To guide them through the pitfalls, Mr McCallion launched ZLX Business Solutions in 2019 as a specialist advisory firm focused on providing consultancy services to companies to help them claim R&D tax credits. 

“This is a specialist field,” he said. “Our team is led by highly skilled engineers and accountants who can help companies to quickly identify projects that are eligible for tax relief. This includes investments in new products, services, software and processes.” 

A key part of ensuring the success of any claim put to HMRC for tax credits is providing properly researched and prepared claims, backed by evidence that HMRC recognises. According to McCallion, the firm has helped clients recoup anything from £10,000 to £600,000 in money paid out to clients under the R&D tax credit scheme. 

As an engineer and former managing director of two multinational technology companies, he has a wealth of experience in preparing R&D claims and has a team of 36 people working on them.

Until the rules were tightened, companies did not have to worry about preparing a technical report to back their claims and the process could easily be completed by accountants.

However after the abuse was uncovered, which HMRC estimates amounted to £365m worth of false claims annually, all claims are now scrutinised thoroughly with 12 in every 100 now rejected.

Relying on accountants who may not understand the technology that is being used by the company means claims are liable to fail.

“Qualification for the credits involves quite a robust and complicated technical report and you do need an industry specialist to create that report which needs to follow the HMRC’s strict guidelines,” said Mr McCallion.

It is important to make sure the technical report is correct because if HMRC decides to review a claim, defending it is a time consuming headache which may not result in the company’s favour.

“One of the key criterion for making a claim is that you must have an industry expert for making that claim and here we have 20 industrial sector specialists, both internally and externally, in a range of fields to ensure companies have a robust report,” said Mr McCallion. “We are very good at understanding the technical qualifications of what is required in these reports.”

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To make it even more complicated, legal expertise is required to make sure the claim complies with HMRC rules which is why Mr McCallion has employed four lawyers as well as the 20 technical experts.

“Altogether we have an infrastructure of 36 people doing nothing but R&D claims and, as far as I am concerned, you could not really get away with any less than that,” he said.  “With the changes that have gone on and the methods they are using to get the numbers down, they are attacking companies big time and unless you have that expert defence mechanism then you are going to fail.”

Mr McCallion added: “For genuine companies, the scheme itself is fantastic. I left a job with quite a lot of money to come into this because it was such a great scheme as it is helping young companies develop products and technologies that will help everybody.

“The scheme, when used correctly, is great and you definitely don’t want people to stop claiming.  

“However it is important that companies who think they might qualify make sure they do and if they do qualify it would be a shame if they did not get the rebates because they did not do a proper technical report.” 

Find out more at zlx.co.uk