Many UK SME’s are not claiming for new product Research and Development costs, meaning they could be missing out on millions of pounds of tax credits.
There are around three and a half million SME’s actively trading in the UK and around 57% of these are eligible for R&D tax credits, however only 1% of SME’s have ever claimed the relief.
Since its introduction there has been a steady rise in R&D tax relief claims, however many SME’s are still unaware that they may be able to claim. This has resulted in hundreds of millions of pounds of R&D tax credits not being claimed, which in turn is making a significant impact on the abilities of an SME to fund new product development.
Who Can Make a Claim?
Whether a company is making profits or losses they are able to claim. A loss-making SME can claim up to 33% of qualifying expenditure while in-profit businesses can get 46% of qualifying expenditures. SME’s are capable of deducting up to 230% of R&D costs, including specific costs such as staff costs, consumable materials, subcontracted costs, power, water, fuel and computer software which is used directly in carrying out R&D.
It is also worth noting that the tax credits are also open to subcontractors undertaking work for other businesses.
To qualify you must have fewer than 500 employees and have an annual turnover of under €100m or a balance sheet total under €86m. Any claim must be submitted within two years after the end of the year in which the money was spent. For example, a business with a year end of April 30th will have until April 30th 2019 to submit claims relating to 2017.
How Does it Work?
Due to a lack of advertising many businesses are unaware that they may be able to make a claim. Some business may believe that they are not eligible, however the relief is not just limited to high tech industries. Any business which has developed some kind of innovation within their industry could make a claim. A common misconception is that this needs to be some new ground-breaking product. However, product improvements, new ranges and new production processes can also be eligible.
A well-structured claim can take HMRC around four weeks to process. Once approved the relief can have a huge impact on the business and any future developments, as well as alter the company’s year-end financial position and help towards financing any future research and developments.
The average claim for R&D tax relief amounts to £43,000, which could make a massive difference to many small businesses. The tax credits can be used to reduce the corporation tax bill of the business or it can be claimed as a cash sum reimbursement from HMRC.
If you believe your business may be able to make a claim, then please get in touch with us for further information.
