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Calling entrepreneurs whose businesses depend on innovation. If your business is engaged in research and development (R&D), it may be eligible for valuable tax credits – but while these could be worth as much as a third of the money spent on R&D, only businesses that claim what they’re owed will benefit. Too many are missing out: the Institution of Mechanical Engineers says as many as four in five firms that could be due support aren’t applying to receive it.
In fact, the tax break is one of the most valuable schemes on offer from the Government, offering tax relief of 230 per cent against corporation tax on R&D spending to small and medium-sized enterprises, plus extra help for loss-making businesses. The average small business making a claim receives around £54,000 according to official data.
To be eligible for the 230 per cent rate, 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 a much broader definition of an SME than many realise.
Many smaller businesses already do claim tax credits. The number of SMEs claiming R&D tax credits in the UK has consistency increased since the introduction of the scheme in 2000, with some 34,000 businesses claiming relief in the 2016-17 tax year (the last for which official data is available). That was twice as many as in the previous 12-month period.
Equally, however, plenty of smaller companies aren’t claiming what they’re owed. To help, three years ago, the Government launched the Advance Assurance scheme to simplify the tax credit application process for smaller firms.
The scheme, which is administered by HM Revenue & Customs, aims to help small businesses – defined as enterprises with a turnover of below £2m and fewer than 50 employees – claim R&D tax relief for the first time, by providing them with greater certainty before making a claim. Under Advance Assurance, a would-be claimant seeks assurance from HMRC that their R&D development is deemed eligible. If it is, HMRC will allow their first three years of R&D tax relief claims without making further enquiry.
Nevertheless, R&D tax credit advisers say it is crucial to make applications carefully. Some firms seek out the help of specialist claims support firms before making their applications. Top tips from such firms include:
- Think about what you were trying to achieve with your R&D – and remember that your efforts do not have to have been successful to qualify as R&D for HMRC purposes;
- Base your Advance Assurance application only on the technical aspects of your projects; remove references to anything commercial;
- Identify the most significant technical challenges you encountered during the R&D, and identify those that couldn’t be solved using existing knowledge and tools;
- Remember that innovation can take the form of internal R&D, to improve process and practice – the development of a new piece of software, for example – and doesn’t have to be customer-facing;
- Be prepared to be patient – HMRC doesn’t have many technical experts of its own, so you may need to spend a bit of time explaining the ins and outs of what you do before they appreciate what you’re trying to achieve technically.
April 29, 2019 at 07:04AM
Forbes – Entrepreneurs