SMEs Missing Out On Tax Relief
HMRC believes that there may be over 150,000 SMEs that have not taken advantage of R&D tax relief, advising that the average claim value, i.e. the tax benefit of tax credit, is £40,000 per accounting period. That adds up to £6bn a year, according to Jumpstart the R&D Tax credits specialists.
Companies incurring expenditure on qualifying R&D can claim tax relief at the rate of 175% for SMEs, which corresponds to a cash benefit of 15.75% of qualifying expenditure for an SME operating at the 21% corporation tax rate.
In the last Budget, it was announced that from 1 April 2011, the R&D tax relief rate for SMEs will rise to 200%; and from 1 April 2012 it will rise again to 225%. Ultimately, this could mean a cash benefit for SMEs rising to 25% of R&D expenditure.
So what is R&D? It is a much wider definition than may be thought and covers areas such as:
- working science and technology (including software and engineering) to achieve an advance in knowledge;
- work to develop new products or services incorporating an advance in science or technology; or
- work to solve technological uncertainties, where the best approach is not known in advance.
- Until 2009, it was a condition that the applicant had to own any resulting Intellectual Property Rights (IPR), but that condition now no longer applies.
For the initial claim, the company can take into account two retrospective years, which would double the claim in the first claim cycle.
Read the full story at Jumpstart with thanks also to Semple Fraser