How Businesses Can Maximize Their R&D Tax Credit Benefits

97% of qualifying SMEs who do not claim for R&D Despite being described as a flagship scheme to stimulate the economy, conservative estimates s

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97% of qualifying SMEs who do not claim for R&D

Despite being described as a flagship scheme to stimulate the economy, conservative estimates show that a staggering 97 percent of those companies eligible for R&D tax credits are not currently involved in the scheme.

Small businesses across the UK can benefit from significant investments in their companies through the HMRC tax incentive, but for many reasons the majority do not claim.

About tax credits

The HMRC Research and Development Tax Scheme was created in 2000 to encourage business innovation and stimulate the economy. Businesses that can demonstrate an effort to innovate, bring a new product or a customized service to market can claim thousands back in tax relief, which can be offset against corporate taxes.

Chancellor Rishi Sunak recently announced plans to further expand the scheme, to ensure that businesses receive even more return on their investment, as well as to broaden the criteria to be eligible for more IT / software claims.

> See also: Sunak’s eyes hamper R & D tax credits for small businesses

The overall goal is to increase UK R&D spending to 2.5 per cent of GDP by 2024.

But figures show that the scheme is largely underutilized, as evidenced by the low percentage of claims. It is estimated that less than £ 1 billion in relief has been spent on R&D in the UK at more than £ 25 billion.

The question is, why?

The majority of our clients simply do not have the time to look at it, or do not believe they will have the time / resources to manage the process to completion.

Awareness is also an issue. Some of our most successful clients have never heard of the scheme before they involved us. Many others doubt its authenticity. And there is also some weight to the idea that the scheme is too complicated, but of course companies like ours are on hand to help with all of the above.

> See also: Why small businesses miss out on millions in R&D tax credit relief

Who can claim for a tax credit?

Any UK limited business can claim for R&D. There are no restrictions on the type or size of business, although the scheme differs depending on whether a business fits HMRC’s definition of a SME or large company.

Suitability is focused on the research project rather than the type of business. The product or service does not have to be complete or even successful. The research / development phase is often enough for you to qualify, but it has to be completely new – it can not be an off-the-shelf solution.

For the SME scheme, a company must employ less than 500 people and have a turnover of less than £ 85m or a balance sheet total of less than £ 73m. A SME’s qualifying R & D cost receives an additional 130 percent deduction when calculating the taxable profit.

R&D project criteria to be aware of …

The project must be related to a company’s trade, and you must be able to explain how the project:

  • Looking for advances in science and technology
  • Had to overcome uncertainty
  • Tried to overcome this uncertainty
  • Could not be easily worked out by a professional in the field

Broadly speaking, the following R&D activities qualify:

  • Software development
  • Design new products
  • Precision engineering
  • Products with new materials
  • Improving existing products or technologies
  • Typical R&D expenses can cover the following:
  • Staff costs
  • Subcontractor costs

What is an R&D claim worth to your business?

Our average claim currently stands at around £ 53,000, but when the new changes announced in the spring statement take effect, it is likely to rise further.

Specialist firms like ours will conduct interviews with SME clients, prepare the returns and only charge a fee against successful credits.

Some recent examples of R&D tax credits from our own portfolio of 120 SME clients include a York fleet management firm that has received £ 50,000 over consecutive years, and a modular portacabin firm that has received almost a £ 68,000 boost in one year alone has.

After working in this arena for five years, it still amazes me how many SMEs do not benefit from the scheme. Companies can benefit from thousands of pounds to reinvest in their businesses, claim back through a successful corporate tax and from there into annual reductions on future corporate tax accounts. It only takes 15 minutes to determine if you are eligible, so for me it’s a no brainer.

Mark Joyner is Company Director of Research & Development Specialists LTD (RDS)

Further reading

R&D Tax Credits: Facts to Know and Mistakes to Avoid


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