R&D Tax Credits – Are SMEs Missing Out?
If someone to sidles up to you and offers you some free, legal money it would be strange to refuse this seemingly no strings offer. Yet there are thousands of UK companies doing just that. They are effectively saying no to a cash injection for their business. By not engaging with the Research and Development (R&D) tax credit scheme, they are potentially refusing some free cash.
Why Are They Doing This, You May Ask?
It mainly boils down to a simple lack of knowledge and an unwillingness to understand the issues. Companies in the SME sector simply do not have the right information and sometimes this is due to poor accountancy support.
Give Yourself Some Credit
R&D tax credits have been available in the UK since 2000. It’s a progressive scheme that allows companies tax relief on their R&D activities.
The scheme aims to encourage innovation in UK businesses. In effect, it’s Government help to develop the products and services that will keep our economy healthy in the face of ever-growing globalisation pressures.
But the shocking fact is this benefit is woefully underused, especially amongst SMEs. Only a fraction of the £1.5bn the Treasury sets aside annually for R&D tax credits is claimed. What’s going on?
Let’s Look At The Facts
A quick overview of the R&D tax credit scheme offers a clue. It states for qualifying projects, R&D related corporation tax relief may reduce your overall bill or indeed generate a tax credit.
The system applies if you’re running an R&D project that seeks ‘to achieve an advance in overall knowledge or capability in a field of science or technology’.
And right there we can see an issue. The opaque language could be off-putting to the average SME. Many businesses would find they qualify if helped by a more straightforward explanation and the right accountancy assistance.
Even now, you may still be under the impression to qualify you need to be wearing a lab coat and staring intently into a Petri dish. So here are a few ‘real world’ examples to prove that R&D tax credits apply much more broadly than you may think.
- E-commerce and fast fashion. On the face of it hardly cutting edge stuff. However, this industry relies on technology and ever-evolving business processes to ensure it can fulfil orders in a competitive market. This industry’s lifeblood is fast-paced innovation that would qualify for an R&D tax credit
- Food and drink. In recent years, the hospitality sector has exploded. And so has the range of food delivery formats. Add in menu innovation in terms of food tastes and textures, and you find plenty of qualifying R&D.
- A traditional, salt of the earth industry. But in the push to create sustainable buildings and address housing shortages, R&D work now includes construction efficiency, eco-credentials and building safety and durability. There’s room to make an R&D claim here.
So What’s On Offer?
Let’s concentrate on the SME scheme. From 1 April 2015, R&D tax relief increased to 230% on their qualifying R&D costs. In certain circumstances, loss-making companies can surrender their losses in return for a payable tax credit at 14.5% (of turnover?).
Better still, you can claim the relief for the previous two tax years. This is a highly attractive benefit especially if have been undertaking some protracted R&D work.
Costs associated with direct and externally procured staff, subcontracted R&D work, consumables, software, trials, prototyping and independent research costs may all qualify for R&D relief. Exclusions include capital expenditure on specialised equipment or expenses related to the production and distribution of goods and services.
If You Don’t Ask, You Don’t Get
You may still be wondering if the scheme applies to you. Indeed judging which projects and activities will qualify for R&D tax relief is the area where most people seek our help.
At Enso, it’s what we do — squaring the R&D tax scheme circle. We’re experts in this area and happy to help you assess if you can apply for R&D tax credits. Just ask! We’ll soon see if you have a qualifying project and then help you to make a quick and painless claim.
If your company could do with some extra cash, then R&D tax credits could indeed be an option. Call my team today on 0161 509 2152 or email me at email@example.com let’s talk about your company’s R&D activities.