In August 2012 HMRC published a paper called “Qualitative research into businesses’ Research and Development (R&D) decision-making processes”. This was a small scale study of the effects of grants and R & D Tax credits on business’ decisions concerning research and development projects.

The report is a detailed study of 69 businesses ranging from the archetypal ‘one man band’ through various sizes of SME to large companies. They looked at how grants and the tax credit scheme were viewed, enablers and obstacles to take up and the financial and other effects on decision making about whether specific R&D projects should proceed.

The information was presented on a qualitative basis as the number of firm involved was too small to allow any statistical analysis, but nonetheless some clear messages emerged.

For grants it was clear that there was a direct relationship between the grant and the related R & D. In many cases the work would not have gone ahead without the grant, especially with companies in the smaller end of the spectrum. Also, when a grant was awarded it resulted in an almost immediate start.

For tax credits the relationship is looser. Where companies had claimed, in general the progress or success of the claim was not seen by the R&D department, and in most cases the value was not credited to their budget. However, a significant number of respondents reported two clear and positive effects. One was that the fact that because the government’s scheme existed at all it helped to promote an ‘R & D culture’. The second was that a more positive attitude was felt within the company and so either more R & D was undertaken than otherwise or projects with a greater risk, but potentially more valuable outcomes, were more likely to go ahead.

There were some report of internal difficulties on gathering the necessary data to make a good claim, but these were substantially from those going through the process for the first time. Once the process was established it became part of the normal record keeping process and so was not onerous.

Many SME companies reported that they had missed out on several years of claiming because of the lack of knowledge of the scheme by the company’s accountants, regardless of whether they were internal or external, and so felt that better, specialist, advice would allow easier and wider claims to be made faster.

In conclusion, for most companies, when the opportunity to claim R&D tax credits is offered, there is hardly a decision to take and the message that the tax credit system sends about government support for R&D is important.

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