97 percent of eligible SMEs do not submit R&D claims
Even though it is characterized as a flagship initiative to stimulate the economy, conservative estimates reveal that 97% of enterprises eligible for R&D tax credits are not currently participating.
The HMRC tax incentive could provide huge investment back into small businesses across the UK, but most are not claiming for various reasons.
Concerning tax credits
To encourage company innovation and improve the economy, the HMRC Research and Development Tax Scheme was established in 2000. Businesses that can show they tried to innovate by bringing a new product or a bespoke service to market might claim thousands in tax relief that can be used to offset corporation tax.
Chancellor Rishi Sunak has revealed plans to expand the initiative further, ensuring that businesses get even more value for their money and broadening the eligibility requirements to include additional IT/software claims.
By 2024, the overall goal is to raise UK R&D spending to 2.5 percent of GDP.
However, statistics reveal that the plan is underutilized, evidenced by the low percentage of claims. It is estimated that less than £1 billion in relief will be provided against more than £25 billion spent on R&D in the UK.
Why is that, exactly?
The majority of our clients either don’t have time to investigate it or don’t believe they would have the time or resources to see it through to completion.
Awareness is also a problem. Before working with us, some of our most successful clients had never heard of the concept. Many others are skeptical about its veracity. There’s certainly some merit to the idea that the system is unnecessarily convoluted, but organizations like ours are available to assist with all of the above.
Who is eligible to receive a tax credit?
Any UK limited company can claim R&D. There are no limitations on the type or size of business. The program varies depending on whether the company is classified as an SME or a large corporation by HMRC.
The research project, rather than the sort of business, determines eligibility. The product or service doesn’t need to be finished or even successful. The research/development phase is frequently enough to qualify, but it must be wholly new — it cannot be a commercial product.
A company must employ less than 500 people and have a turnover of less than £85 million or a balance sheet total of less than £73 million to qualify for the SME plan. When computing taxable profit, an SME’s qualified R&D costs are deducted at a rate of 130 percent.
To be aware of R&D projects…
The project must be related to a company’s field of business, and you must be able to describe how it will:
- I was looking for a scientific or technological breakthrough.
- Uncertainty had to be overcome.
- I attempted to overcome my fear.
- A professional in the field could not simply figure it out.
The following R&D activities, in general, qualify:
- Development of software
- New product development
- Engineering precision
- New materials in products
- Improving current items or technology
- Typical R&D expenses can include:
- Personnel costs
- Costs of subcontractors
How much is an R&D claim worth to your company?
Our average claim is now around £53,000, but this is likely to increase once the new amendments are announced in the Spring Statement.
SME clients will be interviewed, returns will be prepared, and fees will be charged only if the credits are approved.
A fleet management company in York received £50,000 in R&D Tax Credits over three years. A modular portacabin company won nearly £68,000 in one year alone, according to our portfolio of 120 SME clients.
Even after five years of working in this field, I’m continually surprised at how few SMEs use the program. Firms can save thousands of pounds from reinvesting in their operations through a successful company tax reclaim and subsequent annual reductions in future corporation tax obligations. It takes about 15 minutes to see if you’re eligible, so it’s a no-brainer for me.
Research & Development Specialists LTD’s company director is Mark Joyner (RDS)