“The taxman will give me £7,000 for trying to solve the single-use plastic problem”

Alex Stewart expects to receive a cheque for £7,000 from the taxman this year – for trying to tackle the environmental problem of single-use plastics.

“Receiving this tax relief will be a much-needed injection to my company’s cashflow, especially since we have had a huge drop in revenue due to the pandemic,” he says.

His company OneNine5, which designs eco-friendly luggage and travel accessories, is benefiting from a little-known government incentive called research and development (R&D) tax relief, which rewards UK companies for investing in innovation.

To qualify, a business must be small or medium-sized with a staff headcount of fewer than 500 and turnover of less than €100m (£90m).

There is no issue with the company having, say, a single director or shareholder and no employees – as long as it is spending money developing new products, processes or services, or enhancing existing ones. 

The environment

Alex’s London-based firm aims to tackle environmentally damaging single-use plastics in the travel and aviation industry – this is the innovation aspect of his work.

“I was queuing at Heathrow airport’s security one day when it struck me that every passenger was taking the single-use clear bag for their liquids and cosmetics.

“Why do we do this when we now carry reusable bags to the supermarket?”

After doing five months’ research, Alex had estimated that over 151m single-use plastic bags a year are distributed at UK airports.

“So we redesigned the washbag to incorporate a clear and reusable airport liquid bag,” says the 31-year-old, who lives in Croydon, south London.

He launched the business in April 2019. It has two members of staff, and had a turnover of £100,000 in its first year.

Alex admits he was unaware of R&D tax relief until his accountant told him. “It was a surprise to me that it isn’t only available for those working in engineering, science and technology.”

R&D tax relief

R&D tax relief is a complex calculation, allowing you to deduct 130% of your qualifying costs from your yearly profit – or claim a tax credit of up to 14.5% if your firm is loss making.

What makes an innovation eligible for the relief can also seem complex.

For example, a research project must have looked for an advance in science and technology and shown how it had to overcome uncertainty; it cannot just be an existing technology used for the first time in a particular sector. 

“The proportion you can claim between types of costs differs,” says Alex.

“Throughout the year, I keep notes of work that would enable the firm to qualify; the accountant then rewrites it in a form that is preferred by HM Revenue & Customs for the submission.” 

While he is now continually searching for more eco-friendly materials and developing new products, Alex admits that just two and a half years ago he knew nothing about the environmental issue to which he has now dedicated himself.

“I was totally unaware of the plastic problem until I watched BBC’s Blue Planet II. After that, I started to read a lot more and realised I wanted to ‘do my bit’ for the world of travel.”

His journey

Alex has come a very long way in a short time.

“I was made redundant from Dropbox in December 2017 and then had major bowel surgery in January 2018.

“I was incredibly lucky to survive the surgery and spent time in ICU on a ventilator and then six months in a seriously tough recovery.

“I told myself to start taking more risks in life and opt against plans to return to the corporate world.

“OneNine5 was self-funded from my redundancy package and the sale of my Dropbox stock after their IPO in March 2018.

“These two pots of money enabled me to live day-to-day and invest in the business.” 

What I did

1. I spent around 20 weeks doing research and investigating possible approaches to the problem of single-use plastics within the travel and aviation industry. This involved contacting airports, speaking to a charity and looking into the environmental strategies of five of the UK’s busiest airports. 
2. My accountant told me about the tax relief just as we launched OneNine5 on April 12, 2019. He provided me with a framework for recording my company’s activities.
3. I took care to maintain these notes throughout the year in the specific structure that the accountant wanted.
4. He is currently rewriting our notes to ensure it is in the format required by HMRC. Our claim is primarily made up of a portion of my salary, based on the time I invested in R&D for product development, as well as agency costs and sample/prototyping costs.
5. We continually search for more eco-friendly materials while developing new products.

What worked

• Having our accountant from Leap Accounts & Outsourcing on board. We did not have the know-how to apply for this tax relief without him. He also writes the lengthy narrative to support our claim; this is a technical document that requires his expertise. 
• Finding an accountant who doesn’t charge you upfront to apply for and submit the claim. He will only invoice us after we receive the cheque from HMRC.
• Maintaining notes throughout the year in whatever specific way your accountant needs. By doing this, you won’t be left at the end of the year trying to remember details of the steps and tools you used.
• Not being afraid to include your shortcomings and failures in the narrative you submit. An element of uncertainty is expected in the R&D process. We hit countless dead-ends when it came to our co-branding/corporate branding, for example. We eventually found a solution so our wash bags can be customised, but there were failures along the way.
• To understand R&D tax relief, get your head around certain questions. What is the project trying to achieve? Why is the project different to what’s already been done or is currently offered in the market? What technologies/languages/databases are being used for the development? What non-routine technical challenges are you encountering? What specific steps are you taking to overcome them?
• Using a product design agency. OneNine5 is entirely self-funded and there’s just the two of us, so to keep things scalable and flexible, we outsource where required. Agency costs can be included in an R&D tax relief claim. You get less from the cost you pay agencies compared to what you receive for your own time.
• How R&D tax relief is paid. You can receive it as either a cash payment or a corporation tax reduction. You can also defer and carry over any tax relief into subsequent years. We’re still loss-making, so receiving this tax relief in the form of a cheque at this difficult time enables us to keep investing in our growth. 

What didn’t work

• We tried endlessly to ask airports if they had an understanding or estimated number of the single-use clear bags they distributed – airports wouldn’t respond. I even tried to submit a Freedom of Information request to Birmingham airport because it’s part-owned by local councils –  it didn’t come through for us. 
• I had to be incredibly persistent and decided to conduct my own research. I went to observe and speak with staff at one of the UK’s largest airports. We spoke to the environmental charity Hubbub, which already had a partnership with Gatwick airport to implement a process to reuse coffee cups in the terminals. It was able to offer a great insight into the problem of waste management at airports. 
• We also looked into the environmental strategies of the UK’s five busiest airports (Heathrow, Gatwick, Manchester. Stansted and Luton). With various data, we then built the model that estimated that 151m single-use plastic bags a year are distributed at UK airports. More recently, the Design Museum in London had an exhibition that explored the problem of waste in the travel industry and found that 1.43kg of waste is produced per passenger on a 12-hour economy flight. Just over a third of that waste is single-use plastic.

For more about research and development tax relief, read how a vegan food brand is claiming £2,000 after trialling innovative packaging.