According to the latest statistics published by HMRC, the number of claims by SMEs for R&D Tax Credit have increased year-on-year by 20%, the fastest rate for over 10 years. Further, the average cash value per claim has increased from £41,600 to £42,300. The increase of 1.7% in the average value is roughly in line with inflation; on the surface it looks like OK news in a recessionary period.

But this is a false picture as the uplift percentage applied to each claim for the purpose of calculating the amount of tax credit was increased by 33% over the same period. The underlying R&D costs claimed have, therefore, dropped by around a third. Does this suggest that although more SMEs are becoming aware of the R&D Tax Credit scheme, the amount of innovative development work has dramatically reduced? If so, this is not good news for the British economy.

There has been little change in the mix of industry sectors making claims. ‘Business Services’ account for 44.2% of SME claims, down from 46.9% whereas ‘Manufacturing’ has increased from 36.5% to 37.6%. Of the remaining 18.2% of SMEs making claims, the largest group is ‘Wholesale and retail trade, hotels and restaurants’, up 0.8% to 7.3%. Nine other sectors make up the balance. The use of IT is often the largest single cost element in claims.

The overall growth of 20% in the number of SME claims is encouraging because it suggests a growing awareness of the scheme but the number of companies making claims is still a tiny proportion of all SMEs, equivalent to barely 3% of SMEs with 10 or more employees.

There are several reasons why companies continue to miss out on the substantial cash benefits from the R&D Tax Credit scheme. Those that have heard of the scheme often think that R&D relates to ‘men in white coats behind closed doors’ and not to their own companies. Time to think again!

Most who have not heard of the scheme are ignorant because their professional advisers are not aware that their clients are eligible – auditors are trained to measure ‘what’ a client has been doing rather than thinking about ‘how’ their clients have done it.

The reality is that the scope of the R&D Tax Credit scheme is much wider than is the conventional view of R&D in the UK. The British are an incredibly inventive lot, and your company is probably amongst them. Here’s a way for your innovations to get almost instant payback.

If your company is, or has been in the last two years, engaged in development work of any kind – not just on product development but on services or processes, whether for customers or internal use – you could be eligible to receive a reduction in your Corporation Tax of £25 for every £100 spent. This is in addition to the £20 per £100 of standard CT relief you receive already. Thus, the government is actually paying you back £45 for every £100 you spend on development work.

If you are eligible but not yet claiming, you can be sure your competitors are doing so. Why give them a competitive advantage? Get in touch for a chat without cost or obligation – you’ve nothing to lose and everything to gain!