I am astonished at the low take-up of the Research and Development Tax Credit by small businesses in the UK. It’s one of the best ways of saving tax, and conserving (or getting repayments of) real cash in your business. Large businesses, with their high paid accountancy firms, are doing well, so why isn’t your SME business benefiting too? The UK is known as fostering innovation in business, yet this key benefit is not being taken full advantage of.
Why is this? Let’s take a look at some of the reasons.
Myth 1: You have to be inventing something brand new.
Not so. The R&D tax credit is not reserved for companies that invent something really novel or register a patent. It can also be claimed by companies that are improving or modifying an existing product or improving a manufacturing process—that is, making a product cleaner, quicker, greener, cheaper, etc in an innovative way. The only limitation is that is must involve science and technology. So, computer software, architecture, engineering, energy production, waste processing, medical devices and so on are all good candidates for the R&D tax credit.
Myth 2: The R&D tax credit is only for organisations with guys in white coats in laboratories fiddling with test tubes.
Whilst it is true that companies involved in basic research are clearly prime candidates for this R&D tax credit, the credit is very much about encouraging applied science – taking new ideas and making things happen with them. Solving a customer’s problem or a production issue using known scientific principles is right where this credit is aimed. Problem solving on the shop floor, in the field, on the site, behind a computer – all may eligible for the R&D tax credit.
Myth 3: The R&D tax credit isn’t for companies in my industry.
Wrong again. Thousands of businesses across the country from a wide range of disciplines claim the credit, including civil engineering and architectural companies and businesses involved in everything from chemicals to computer software and electronics, food processing and agriculture as well as energy such as solar, wind and oil and gas. Writing yourself off or bad advice from professionals are the biggest blocks to companies like yours claiming their due R&D tax credit.
Myth 4: The R&D tax credit is not for me, it is only for big companies.
It is true that the big guys, with their armies of tax lawyers, are all over the R&D tax credit, but thre are special advantages that SMEs have that re denied to big companies. Specifically the paybacks are much more generous. So, if it is good for a big company to claim, think how much better it is for smaller ones! The R&D tax credit is available for all small and medium businesses that come under the Corporation Tax umbrella, but you do need to apply to get it – HMRC isn’t simply handing out credits.
Myth 5: If I claim the tax HMRC will subject my company to increased scrutiny.
There is simply no evidence to support this statement. The R&D Tax Credit is handled by specialist offices that are separate form the normal run of taxation. They have specialists who evaluate the claim document and approve the claim or raise questions about it. In the end they approve an agreed claim value. This then goes in a special box on your CT600 tax form and the benefit is paid or allowed as appropriate. End of story.
Myth 6: The R&D tax credit won’t help my balance sheet and company value.
I gulped the first time I was told this by a company director. I could not believe what I was hearing. I checked back and he told me that his accountants had told him this. It is completely wrong. An approved R&D Tax Credit claim either allows a company to retain cash that would otherwise be paid as Corporation tax or receive and cheque if the claim is for a past, closed, year where tax has been paid. That’s additional real money in the company. Relax, the value of your company has just increased by the claim amount.
Myth 7: I don’t believe it – the government giving away money? Surely not!
But surely it is true. This is one of the ways that the government incentivises companies to be more innovative so as to drive the knowledge base of UK plc forwards. In this world where others are snapping at our heels the government wants us all to use or brains, and that’s why the money is forthcoming.
Myth 8: My professional advisor (accountant, lawyer, consultant) says I have no basis to claim.
I hear this all the time, it is the saddest thing. All out clients were told this story by people who do not know the system and how generous it is. Maybe they believe the other seven myths (but you know better now), maybe they are not sufficiently technical to judge (and don’t want to be shown up) or maybe they just are too lazy to find out enough so their clients can benefit. I don’t know what the answer is, but I do know that this attitude is putting thousands of business off claiming what is rightfully theirs, more money to build your businesses.
If any of these have applied to you then you owe it to yourself and your business to find out more. Click here to contact us today for an informal chat.