Millions of pounds going unclaimed in R&D Tax Credits
There are thousands of small and medium enterprises (SMEs) operating in manufacturing and software development throughout the UK. There is a common theme amongst them: they don’t realise they do some R&D.
More specifically, companies remain unaware that they are the kind of business that qualifies for R&D Tax Credits, or of how much credit they can claim.
R&D Tax Credits are a company tax relief for research and development. They can either reduce a company’s tax bill or, for most SMEs, provide a cash sum upfront. A dedicated R&D Tax Credit team within HMRC coordinates this programme, but the cash is actually coming from a European Fund.
The UK government remain committed to ensuring that UK companies receive a full share of the funds available from the EU. However, the UK lagged behind its European neighbours in embracing this opportunity. Less than 5% of companies, who the government think are eligible, have taken up the scheme.
Recently, I visited a “small” engineering company in Leicester. They have just over 30 employees and a turnover in the region of £5 million. Like most businesses, they are focused on the operational issues: how to reduce costs and deliver products and services that meet their customer needs.
The first thing the MD told me is that he didn’t think they qualified for the R&D Tax Credit scheme…they didn’t do research and development. Actually, he couldn’t think of anything really innovative in what they did. Their accountant told them this too.
But claiming R&D Tax Credits isn’t about number crunching. It is about truly understanding innovation processes.
We talked about the company’s operations—their product development, processes, use of technology and their manufacturing process. Within half an hour, we were walking around the factory and he was showing me where they were innovating in the business. Where they were taking risks. Where they were, in fact, doing work that qualified for R&D Tax Credits.
The result? The company is now looking in the region of £60,000 for their first claim. And it doesn’t stop there. They can make a claim every year for years to come.
Unfortunately, this is not an isolated case. Since 2008, my company (randd uk) has processed over £26million in R&D Tax Credits, working with almost 500 companies. The majority of these have been SMEs that have weathered the financial storm, unaware there was cash available for them.
So you must be thinking now, is my business able to qualify? The size of your business will determine which R&D Tax Credits you are eligible for and how much you can claim, but every business registered in England and Wales is eligible to claim.
Next, think how you might answer these questions for your company:
- What technical difficulties or challenges did you overcome in pursuing your improvement?
- What were the uncertainties in doing so?
- How and when were the uncertainties overcome?
- Why was it not readily deducible?
These four questions can help secure the future of your company.
The aim of R&D Tax Credits is to encourage greater spending on research and development to promote investment in innovation. By simply changing the way R&D within companies is viewed, and focussing on innovation and development, much needed cash injections could be the key to survival for many SMEs in the UK today.