Why are so few eligible SMEs claiming R&D tax relief?

By Mark Tighe, CEO, Catax

Let’s be honest, tax relief isn’t the most exciting issue that SMEs face. However, the reality is that done well, it can be the difference between a firm’s success, stagnation or even failure. Tax relief comes in many forms but, for now, I want to concentrate on a lesser known version set up by the Government to stimulate innovation across the economy. This is Research & Development (R&D) tax relief and is applicable to businesses of any size who spend time and money developing a new product, process or service.

Through extensive research across the UK, we’ve identified that nearly eight in ten SMEs are likely to be eligible for R&D tax relief but incredibly, up to 55% of those aren’t claiming. If we conservatively assume that two thirds of Britain’s 5.7 million SMEs are actively trading, this translates to approximately 1.6 million small businesses who are missing out on this valuable relief. In our experience at Catax, the typical R&D claim is worth £46,000 – so the total amount that small businesses could be missing out on equates to £74 billion.

The question that needs to be addressed is — why are so many small and medium-sized businesses failing to claim what’s rightfully theirs?

Firstly, there continues to be a lack of awareness around the very existence of R&D tax relief. It is not particularly well publicised by the Government or HMRC and, as with most areas of taxation, some of the detail is quite complex.

Secondly, many believe the relief is limited to scientific firms, particularly those in the pharmaceutical industry, meaning SMEs fail to claim because they don’t think they qualify. This is just not the case – SMEs in every sector are innovating. For example, we’ve recently processed claims from restaurants developing new dishes, manufacturers coming up with more efficient ways to put jam into donuts, and an engineering firm developing a new counter terror bollard. It’s also worth mentioning that the R&D doesn’t even have to be successful to qualify – all that matters is that time or money has been spent on a new product, process or service.

Finally, there is a misconception that claiming is time consuming and expensive. Most good R&D firms take a commission from the successful claim and engage their own in-house expertise to handle the case from start to finish.

SMEs in every industry need to innovate to remain competitive and relevant. The Government knows how important R&D is to the UK economy, particularly with Brexit getting ever closer. R&D tax relief is there to be claimed and I’ll leave you with this question. Can your SME afford miss out?