Even more “free” money available from HMRC…
OK we admit that was designed to be an attention grabbing headline however it is true.
Read on to find out how the R & D Tax Credit relief scheme could benefit your small business.
Back in December 2014 when the Chancellor delivered his Autumn Statement he announced an increase in R&D tax credit relief for SMEs (Small and Medium Sized Enterprises) from 225% to 230% as from 1st April 2015.
Quite simply this means that companies who meet the SME criteria can claim a reduction in their tax bill of up to 26% of their qualifying spend on R & D in tax relief.
As an example if you are spending £100,000 in Research and Development you could receive a reduction in your tax bill of £26,000 being 26% of the qualifying Research and Development expenditure. The R & D Tax Credit has increased significantly since the initiative was first launched by the Labour government in 2000. Under Labour the rate of tax relief for SMEs remained at 150% until July 2008 when it was increased to 175%. The Conservatives upped the rate to 200% in April 2011 and then to 225% in April 2012 before this latest rise to 230%. It appears that R & D Tax Credits have been seen by successive governments as a way to incentivise businesses to invest in R &D and to contribute to the growth of the UK economy.
The reality however maybe a little different…
HMRC provide some interesting facts and figures on R & D Tax Credits. From 2000-2001 until 2012-2013 under the SME scheme over 100,000 claims have been made and more than £9.5 billion of tax relief has been claimed by 28,500 companies. The number of claims has increased year on year, with a 30% uplift in the period 2012-2013.
According to the Department of BIS (Business, Innovation and Skills) in 2014 there were an estimated 5.2 million SMEs in the UK. If my calculations are correct that is just over a 0.5% uptake, in fact the figures are potentially even lower as the definition of an SME for R &D Tax Credits purposes is under 500 employees compared to under 250 employees for the BIS estimates.
So what about these millions of SMEs? Why have they not taken advantage of the free money on offer from HMRC?
It could be that some of them have and their claims were unsuccessful but we believe that in the vast majority of cases small businesses have either never heard of the scheme or do not fully appreciate that they are undertaking R&D.
It’s hard not to think of people in white coats working in a laboratory when you hear the phrase R & D. Fact is over 32% of the claims made in 2012-2013 came from manufacturing companies and over a quarter from the Information and Communication sector, the vast majority of which do not have ‘white coats’ or laboratories. . Yes, R & D is far more prevalent than you think!
All it takes is a quick phone call to us and we will soon be able to tell you whether the activities you carry out qualify as R&D. We have spoken to many business owners who were aware of the “free” money on offer and had even looked at the HMRC website to establish what was involved in submitting a claim but were put off by the complexity of the information required. In the words of the famous TV advert from 2008 – “Tax doesn’t have to be taxing”. If you need some help, just give us a call on 01440 708333 or take a look at our simple 7 step process.