Any business spending money developing new products, processes or services, or enhancing existing ones, is eligible for research and development (R&D) tax relief. This is a hugely valuable source of cash for firms and helps them grow. Jenny Tragner, director at R&D tax credit consultancy ForrestBrown and a member of HMRC’s R&D Consultative Committee advises
But it seems while many smaller organisations have woken up to the existence and benefits of R&D tax credits, they’re being too cautious or taking bad advice. As a result, they could be missing out on vital funding by undervaluing their R&D tax credit claim.
The latest government figures paint a picture of missed opportunity. The data, which covers accounting periods up to 2017-18, shows that the number of R&D tax credit claims is increasing. Over 48,000 were made during the period, with 87% made by SMEs.
The average claim value for SMEs is currently £53,714. However, a large proportion of these firms are asking for very small amounts. Over three quarters (77%) made a claim worth less than £50,000 and nearly a fifth (18%) claimed less than £5,000.
This is a worrying statistic. Carrying out R&D is an expensive activity, so such small figures must mean businesses are missing out – and significantly so. It is hard to believe that smaller firms are spending less than £10,000 annually on R&D.
This begs the question, why are they not demanding everything they’re entitled to? This is a genuine government incentive that rewards businesses for their investment in innovation. Why are businesses holding back?
It could be that they’re nervous about the process. They’re dipping their toes into the water, but afraid of jumping in. If this is the case, it’s important to remember that if you’ve undertaken R&D, as a business you have every right to expect the full amount the government is offering. Firms shouldn’t sell themselves short – and should question an adviser who suggests caution where it’s not due.
Alternatively, it could be that SMEs are being misadvised to make smaller claims with a view to getting a little extra cash. They may mistakenly be hoping the low value mitigates the risk of an HMRC enquiry, which have been increasing in recent years.
In this instance, business leaders need to question whether they’re getting the right advice. There has been a recent spate of adverts from spurious advisers mis-labelling what constitutes R&D.
Whatever the reason for the low value of claims, there is one thing all those undertaking R&D must do: choose their adviser carefully. Firms must neither be over cautious through nervousness, nor make small yet dubious claims. Both are the result of either poor decisions or bad advice.
The key to maximising your claim is to ensure you have a team on hand with the right expertise. The best adviser you could work with would include a multidisciplinary team who know the system inside out: chartered tax advisers and accountants; sector specialists, and even former-HMRC inspectors.
A good adviser will provide strategic advice on how to add value to your claim year-on-year. Finally, ask them about their enquiry rate. This will be the surest way to know you’re dealing with people who can get you every penny you’re owed.
For more advice, visit www.forrestbrown.co.uk.