Are you missing out on R&D support?

It’s a quite shocking statistic. According to new figures, the Treasury owes Britain’s small businesses more than £84bn in backdated research and development (R&D) tax relief.

Tax relief specialist Catax says that around 3.5 million small businesses are actively trading in the UK, with 57 per cent eligible for tax credits on R&D.

However, only around one per cent of small businesses have claimed the relief, meaning that approximately 1.96 million SMEs are owed money.

Catax says that means the Chancellor Philip Hammond is sitting on an “SME war chest” that is almost twice the annual budget of the Ministry of Defence.

As its chief executive Mark Tighe says: “The sum owed to SMEs is astounding when you think about what they could do with that money in the face of significant headwinds.”

It would suggest that much more work is needed to promote and explain to SMEs how the system works – and what actually qualifies as R&D.

When it comes to research and development (R&D) the image conjured up is of serious white coated scientists slaving over Bunsen burners in high-tech laboratories funded by blue chip corporations.

However, the reality is that companies in a whole range of sectors are actively involved in R&D and are investing time and cash on improving products or service. And that qualifies them for support.

That support is large. R&D tax credits are a form of corporation tax relief. Created by the government in 2000, they provide qualifying companies with very generous cash repayments– the average value of an SME claim stands at around £62,000, according to official figures.

So who is eligible for R&D tax relief? HMRC has set out some clear rules and guidelines.

It says your company can only claim for R&D tax relief if a “project seeks to achieve an advance in overall knowledge or capability in a field of science or technology through the resolution of scientific or technological uncertainty” – and not simply an “advance in its own state of knowledge or capability”.

The project must relate to your company’s trade – either an existing one, or one that you intend to start up based on the results of the R&D.

And if your company or organisation is claiming tax relief under the SME scheme it must own any intellectual property that might arise from the project.

It is not enough to say that a product is commercially innovative. You can’t claim in respect of projects to develop innovative business products or services if they don’t incorporate any advance in science or technology.

You can’t claim R&D tax relief under the SME Scheme if you’ve been subcontracted to do the work on behalf of somebody else.

It’s also worth pointing out that your project doesn’t have to be a success in order to qualify for the relief. The fact that it failed can be used to show that its work was genuinely pioneering.

However, if your company receives a subsidy or grant for an R&D project, it may affect how much tax relief you can claim.

To discuss the possibility of claiming R&D tax relief please contact me on 01772 430000.

 

As Senior Tax Consultant at WNJ I have expertise in trusts and work on a wide range of other tax matters from partnership structures, corporate transactions to Enterprise Investment Schemes. I also advise on capital gains tax and inheritance tax.