For most tech businesses, research and development (R&D) is the driving force behind growth. We explain why it’s worth it for innovative businesses to claim tax credits.

In his inaugural March Budget, George Osborne announced positive changes to the Research and Development (R&D) Tax Relief scheme. 

Notably these included increasing substantially the eligible R&D spend enhancement from the current 75 per cent to 100 per cent and again in 2012 to 125 per cent for SME technology-based businesses. It means that any business with an innovative idea new to the industry should apply.

David Marshall, director at specialist R&D tax advice firm Alma Consulting Group, says, ‘This is a substantive improvement to the scheme. Cash-strapped SMEs in start-up mode rely on investors to help them fund their innovative product development, often while staff levels and payroll costs are kept to a minimum, and any relief in this regard will be a big help.’

Vicki Davies, associate director for national tax at RSM Tenon, says that R&D tax credit relief in its current form is overly complicated and off-putting for companies, but perseverance is key. ‘Businesses are often blinkered into thinking that they can’t claim,’ she says.

‘But it’s a valuable relief, and if companies can go through the process of reviewing whether they’re eligible, it may be worth doing. Advise HMRC what you’re doing and why you think it’s innovative.’

Peter Gradwell, founder of internet solutions provider Gradwell, claims tax relief for his company, which built its own communications software, and will be able to claim on his full R&D spend of around £102,000 as opposed to £76,000 as a result of the changes.

‘I think all businesses should work with their expert advisers to see if/how their work qualifies for R&D tax relief,’ he says. ‘It is not too hard to apply for, lots of things do count, and it is always good to get something back from the Revenue!’