R&D tax credit claims up 20 per cent

There has been a 20 per cent increase in the total number of claims for R&D tax credits, according to the latest HMRC figures.

And the good news is that the increase in the take-up is being attributed to a growing number of SME claims, with the department forced to add extra resource to meet the demand.

Manufacturing firms claimed £1.25bn using R&D tax relief in the 2017-18 financial year – more than any other industry sector, new research has revealed.

And since its launch at the beginning of the decade, more than 300,000 claims have been made overall, with £26.9bn claimed in tax relief.

That is a sizeable sum and the figures are moving in the right direction; however it is clear that many small businesses are still unaware of the support available to them.

There is a perception that the credits are just for young companies at the start of their development. That is certainly NOT the case.

The SME R&D relief provides an enhanced deduction for tax purposes of an additional 130 per cent of qualifying revenue expenditure on qualifying R&D, in addition to the 100 per cent deduction already available for revenue expenditure under the normal tax rules.

Where the SME is loss making, alternatively, the SME may claim a tax credit up to 14.5 per cent of the surrenderable loss.

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.

Gaining this support can be an important part of a business’ decision whether to make an investment that can see very real benefits for its future.

The requirements of the scheme are broad. It can include creating new products, processes or services or changing or modifying existing ones.

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