SMEs missing out on research and development tax breaks according to recent government stats
Director in tax services to businesses at Smith & Williamson, Matt Watts, said:
“New figures from HMRC show that the overall value for research and development (R&D) tax credits rose to £2.45bn for 2014/15 but thousands of businesses are still missing out and time is running out for them to claim for calendar year 2014.”
From 1 April 2015, the government increased the SME R&D uplift on qualifying spend to 230% and the rate of tax credit repayable on surrendered losses for ‘large’ companies to 11%.
Loss-making SME businesses are now eligible for a repayment of up to 33% of qualifying expenditure, whereas those which are in-profit can save tax at 46% of qualifying expenses.
Matt said:
“In most cases, a cash payment from HM Revenue & Customs could have a major impact in the early years of new businesses. Equally, if a business is looking to grow and scale their business, a tax repayment could make a key difference.
“HMRC noted that SMEs have made more claims over the previous year (roughly 2,600 more year-on-year). However, it is our belief that, due to the wide definition of ‘SME’ many are still missing out.”
SMEs can benefit from an enhanced rate of R&D tax credits compared to larger businesses. To qualify, SMEs must employ fewer than 500 people, and have either an annual turnover of no more than €100m or a balance sheet total not exceeding €86m. This is far more generous than many traditional definitions of a SME.
Matt continued:
“Companies in the early years of trading are often under pressure from a cashflow perspective. If the company is spending money innovating and advancing technology, a claim for R&D tax relief resulting in a cash repayment can be extremely valuable.
”The figures indicate there are a number of industries which have yet to capitalise on the benefits that R&D tax credits offer such as the construction and real estate, and financial and insurance industries which account for only 2% and 1% of the total. Projects in IT are often eligible for R&D tax credits and considering the developments in construction methods, online estate agents and increasing automation of many financial services it is surprising that there have not been more claims.
“The financial services average claims are higher than the SME average which leads us to believe there are a number within the financial services sector who are missing out.”
R&D claims by SMEs, 06.04.2014 – 06.04.15
Sector No. of claims % of total No Average
Finance and insurance 190 1% £79k
Construction and real estate 425 2.1% £35k
Education 150 0.8% £67k
Arts, entertainment and recreation 135 0.7% £111k
Health and social work 165 0.9% £61k
Total SME claims 18,450 100% £56k
