How SMEs can benefit from R&D tax relief

How SMEs can benefit from R&D tax relief

HM Revenue and Customs have published the latest statistics for R&D tax credits for the 2015-16 financial year.

Once again there has been an overall increase in the number of tax relief claims submitted, as well as in the overall total amount of relief claimed.

The total number of claims in the 2015-16 period was 26,255, an increase of 19% from 2014-15. In particular, the number of claims under the Small and Medium Enterprise (SME) scheme rose from 17,875 in 2014-15 to 21,865 in 2015-16, an increase of 22%, with £1.3 billion claimed.

It’s great to see that more SMEs are benefiting from R&D tax credits. These tax credits are a powerful way of supporting innovation in the UK economy and are extremely beneficial to companies of all sizes, particularly smaller enterprises where cash flow can be a critical issue.

However, although more UK SMEs are claiming R&D tax credits than ever before, many companies are still missing out. Almost any company in any industry is eligible for R&D tax credits, so long as the business is undertaking development activities to seek to achieve an advancement in science or technology. Many businesses are doing this in their day-to-day work, from software development and engineering companies to firms working in food production.

Almost any company in any industry is eligible for R&D tax credits, so long as the business is undertaking development activities to seek to achieve an advancement in science or technology. Many businesses are doing this in their day-to-day work, from software development and engineering companies to firms working in food production.

Many businesses are doing this in their day-to-day work, from software development and engineering companies to firms working in food production.

If your company is taking a risk by innovating, improving, or developing a product, process, or service, then you can qualify for R&D tax credits.

The project must contain a level of technical uncertainty for a competent professional, so if you faced questions that left you and your team scratching their heads to find a solution, that’s a good indication that qualifying R&D activities were taking place.

Is your business eligible for the SME scheme?

  • For a company to be regarded as an SME it must have a group headcount of below 500 staff and meet at least one of the following: a turnover of below €100 million or gross assets of less than €86 million. A large company is any company that exceeds the SME thresholds.
  • From 1 April 2015, the relief SMEs can receive has increased to 230% on their qualifying R&D costs. Loss-making companies can, in certain circumstances, surrender their losses in return for a payable tax credit.

Tax Cloud: a new way to make the R&D tax credits claim for your small business

In addition to the information available from HMRC and help from a specialist R&D tax credit advisor, there is now an additional option for SMEs seeking to claim their R&D tax credit entitlement: Tax Cloud, an R&D tax credit claim portal.

Tax Cloud offers your small businesses a guided, cost-effective, online tool to help you through the R&D tax relief claim process. After a straightforward sign-up process, Tax Cloud automatically verifies your details through Companies House.

You then use the Tax Cloud forms to provide information about your R&D projects and their costs. Myriad Associates’ expert consultants review and support your claim by giving you feedback and recommendations to ensure that you’re on the right track.

Once you’ve finished your claim, Tax Cloud takes your project details and creates an R&D tax relief claim report that’s ready for you to submit to HMRC.

How do R&D tax credits work?

Whether you make your R&D tax credits claim directly to HMRC, with a specialist advisor, or through a portal service such as Tax Cloud, there are a few areas to understand before you make a claim.

What activities can be included in an R&D tax credits claims?

The following activities would be considered eligible for R&D tax credits:

  • defining technical objectives
  • identifying uncertainties
  • feasibility studies
  • reviewing new and competing technologies
  • analysing, designing and developing the technology
  • producing technical specification or other documents to explain and support the R&D project and advancement
  • testing the product, process or software
  • planning and managing projects

In addition, certain indirect support activities may qualify for R&D tax relief, such as:

  • administration, finance, and personnel services specifically required to support R&D activities; and,
  • training to support R&D.

How much expenditure is required to apply for R&D tax relief?

There is no set amount of expenditure required to apply for R&D tax relief, although the more your company spent on your qualifying R&D projects, the higher the corporation tax savings you will receive from HMRC following a successful claim.

What costs are eligible for R&D tax credits?

The main areas of costs that can be claimed are:

  • Staff costs (gross pay, employer’s National Insurance contributions, employer’s pension contributions, and reimbursed expenses)
  • Agency workers/externally provided workers
  • Sub-contractors/freelance workers
  • Software licence costs
  • Consumable items (materials or equipment used or transformed by the R&D process)

You can use an R&D tax credits calculator to see an estimate of your corporation tax savings based on your spending on your R&D projects.

Although there has been a continuing increase in the number and value of R&D tax credit claims, there are still thousands of companies – especially SMEs – that aren’t claiming what they’re entitled to.

If your company is doing ground-breaking, innovative work in any industry, it’s very likely that you qualify for R&D tax credits, and there’s no better time to make your first claim. You can only make R&D tax claims going back 2 accounting years, so if you don’t make the claims now, you’ll be missing out.