R&D tax credits explained

New guidance for growing businesses that could benefit from research and development tax relief has been published by Her Majesty's Revenue & Customs.

R&D tax credits or relief can reduce your taxable profits and create or increase taxable losses, meaning less corporation tax is paid or the Government pays you in the form of tax credits. Almost 5,000 SMEs claim more than £250 million in tax relief every year.

There are two schemes: the large company scheme and the SME scheme. To apply for the latter a company must have fewer than 250 employees and either annual turnover not in excess of €50 million (around £34 million) or a balance sheet not exceeding €43 million (around £29 million).

An SME may be eligible to receive tax relief if it is doing something that involves having to develop scientific or technological knowledge that is not commonly available. This is the basic requirement but there are a variety of other criteria, on which the HMRC guide goes into detail. The relief is worth up to 15 per cent of eligible R&D costs.

For further information visit: .gov.uk Research and Development (R&D) tax reliefs Guidance page

Businesses missing out on ‘free money’

SMEs are still missing out on tax relief for research and development (R&D) projects, according to a KPMG survey of mid-market companies. Over 80 per cent of respondents knew little or nothing about the credits currently available.

Of those who knew only a little about the scheme, over half believed it was irrelevant to their business. David O’Keeffe, head of KPMG’s R&D tax credits team, says that companies are ‘effectively turning their backs on free money’. He adds: ‘Forget the classic images of white coats and test tubes. The vast majority of claims are by companies outside the pharmaceutical industry. R&D is by no means just about blue sky research.’

The survey also revealed widespread ignorance that, as of March next year, the time period over which tax credits can be claimed will be reduced from six to two years. More encouragingly, 84 per cent of businesses who had applied for tax credits found it at least moderately easy to get the claim agreed by the taxman.

O’Keeffe continues: ‘Time’s not yet up for companies to get the maximum benefit from these R&D tax credits but the clock is certainly ticking. SMEs should not assume they don’t qualify.’

See also: How businesses can maximise their R&D tax credit benefits

Marc Barber

Marc Barber

Marc was editor of GrowthBusiness from 2006 to 2010. He specialised in writing about entrepreneurs, private equity and venture capital, mid-market M&A, small caps and high-growth businesses.

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