Blog: Should your business claim R&D Tax Relief?
Only 2.15% of small and medium enterprises (SMEs) in the East Midlands claimed R&D Tax Credits in Financial Years 2016/17 and 2017/18. There should be 1000s more making a claim.
SMEs from our area made up just 6.6% of the total businesses that claimed R&D Tax Credits in Financial Years 2016/17 and 2017/18, claiming over £125 million in tax relief in each period. That 6.6% equates to approximately 3,000 businesses.
With over 146,000 SMEs in the East Midlands region, there’s a significant number of businesses not yet taking advantage of the UK’s generous R&D Tax Credit schemes.
What is R&D Tax Relief?
The R&D Tax Credit schemes are a HMRC incentive to encourage UK businesses to innovate, rewarding them for developing new products, processes and services.
Through the highly beneficial SME Scheme, UK SMEs can claim back up to 33p for every £1 spent on research and development as either a Corporation Tax (CT) deduction or cash-back.
To be eligible to claim via the SME scheme, businesses must have:
- less than 500 full-time employees; and,
- less than €100 million turnover.
In addition, businesses must be performing R&D activities that seek to achieve an advance in overall knowledge or capability in the field of science or technology and resolve scientific or technical uncertainty.
Why you should check your eligibility?
With the average SME claim being £54,000 per year; it’s crucial for all SMEs to double-check whether they’re eligible to make a claim.
A large proportion of businesses either believe or have previously been advised that they’re not eligible for R&D Tax Relief; when in fact, they are! This is particularly prominent in the software, technical consultancy, construction and financial sectors due to research and development activities being overlooked and thought of as ‘day-to-day activities’.
Furthermore, there are various myths that continue to cause confusion regarding a business’ eligibility to make an R&D Tax claim. The answers to these myths are below:
- A business can claim if they’re loss-making
- A business can claim if the R&D was grant-funded
- A business can claim if the R&D didn’t produce the desired end-result
- A business can claim if they’ve paid a sub-contractor to complete R&D on their behalf; and
- A business should be able to claim for R&D undertaken on behalf of a client.
It’s also important to remember that your business can make an R&D Tax claim for any R&D completed in the current financial year as well as the 2 previous financial years. Therefore, if you’re yet to make an R&D Tax claim, your business could receive multiple years of cash benefit from HMRC in one lump sum.
A few top tips!
In most industry sectors, businesses have regulatory and legislative requirements that must be adhered to. A business’ compliance with changing legislation can lead to innovation and R&D! When you’re considering the eligibility of your business to claim R&D Tax Credits, keep in mind any changes you have made to remain compliant.
HMRC Guidance for R&D Tax Relief claims is complex and can be difficult to decipher. Understanding what HMRC considers to be eligible R&D activities can be arduous, which results in many businesses thinking they’re not able to make a claim.
Director of R&D Tax Credits at TBAT Innovation Ltd, Sam Stephens, says “We work with many local businesses that have never claimed R&D Tax Credits, after years of believing they weren’t eligible.
“Part of our role as R&D Tax Specialists is to identify any and all activities that are considered R&D, enabling businesses to claim their full entitlement to R&D Tax Relief.
“I encourage any business developing new products, processes or services, whether for themselves or for a client, to contact a specialist R&D tax consultant such as TBAT, to discuss their eligibility, as soon as possible.”
By acting before a financial year-end and beginning the claims process, your business will be able to claim for previous years’ R&D activity, alongside planning for the current and future year’s claims – maximising your reward for being innovative!
This blog has kindly been supplied by Danielle Allen from TBAT Innovation.