Laurence Bard, tax partner and R&D specialist at Smith & Williamson says that many businesses are investing large sums into developing IT systems, for example, but the firms are unaware that they could qualify for R&D breaks.
'Expenditure on systems development is widespread and companies are missing out. Following further increases, cash repayments of up to 33 per cent of qualifying R&D expenditure can now be claimed and this money feeds through to the current year, helping to boost a business’s profits,' adds Bard.
The government has confirmed its commitment to R&D tax credits in a new report and this, combined with a slight further increase in the amount which businesses can reclaim, is good news for organisations in any sector, adds Bard.
Subcontractors undertaking work for other businesses are also eligible for the tax credits.
According to the report by HMRC, £1.4 billion was claimed in tax relief on R&D from April 2012 to April 2013, the most recent year for which information is available.
Claims must be submitted no later than two years after the end of the year in which the money was spent. For example, businesses with an accounting year end of April 30th have until April 30th 2015 to submit claims relating to 2013.
Tax specialists at Smith & Williamson analysed the figures and noted sector and regional imbalances.
Bard explains, 'The number of claims by SMEs in the finance and insurance, construction, real estate, arts and health sectors are particularly low. However, where successful claims have been made by firms in these sectors, the average sums received have been among the highest.
'We therefore believe there could be considerable scope for businesses in these sectors to claim R&D tax credits.'
Two thirds of the total amount claimed came from companies registered in London, the South East or the East of England.
Loss-making SME businesses are now eligible for a repayment of up to 33 per cent of qualifying expenditure, whereas those which are in-profit can claim a tax credit of 46 per cent of qualifying expenses.
Bard adds, 'The potential for R&D tax claims on IT development arises, as software is specifically recognised by the tax authorities as technology, and its development is often difficult and uncertain.'
The resolution of technological uncertainty in respect of software can present significant opportunities to claim R&D relief, Bard continues. 'If your staff are experienced professionals working in the field, and they consider their development assignments to be uncertain as to whether or how results can be achieved, you should look into the potential for an R&D tax claim.
'It doesn’t matter if competitors have already found a solution – unless they have published the mechanisms behind their discoveries.'
Eligibility
Small and medium-sized enterprises (SMEs) taking on work as sub-contractors are also eligible. Only 575 sub-contractors claimed in the 2012/13 tax year, suggesting there is little awareness of the opportunities.
SMEs can benefit from an enhanced rate of R&D tax credits compared to larger businesses. To qualify, SMEs must employ fewer than 500 people, and have either an annual turnover of no more than €100 million or a balance sheet total not exceeding €86 million.
Smith & Williamson has set up an R&D calculator which is available here and is free of charge. It provides businesses with an immediate indication of how much they can claim in R&D tax credits.
