Scottish Technology Sector Missing out on R&D Tax Support
Johnston Carmichael, Scotland’s largest firm of independent chartered accountants has claimed that Scottish technology firms are missing out on millions of pounds of research and development (R&D) tax relief.
Breaks are currently available to companies which invest at least £10,000 per annum on qualifying R&D activities in the form of tax relief and a cash tax credit for any loss-making firms. The level of support is dependent on the size of company with SMEs qualifying for 200 per cent relief on all R&D while larger firms can claim for 130 per cent.
The Government announced further proposals to expand the level of support in June, but even under the existing rules, Johnston Carmichael has handled over 100 R&D claims for its clients across all sectors in Scotland, generating more than £23m in tax relief and credits. While this work has primarily benefitted Scottish technology firms, which secured more than £19m in tax relief and credits, the firm believes that many in the sector are still not accessing the incentives, with many unaware that existing innovation development qualifies as R&D.
Johnston Carmichael‘s Edinburgh-based Director of Tax, Simon Burton said: “While R&D relief is currently a very generous tax incentive, only a fraction of Scottish technology companies are applying for it. One of the problems is that many tech businesses are not identifying what actually qualifies for R&D. We’ve also seen a perception amongst many firms that it is not financially viable to make a claim but this is not necessarily the case and, as a result, they are losing tax relief in key areas such as staff costs, consumable and transformable items and computer software.”
“Given the importance of the technology sector, the relatively low number of R&D claims could prove detrimental to Scotland’s wider economy. Failing to optimise these tax breaks can, in some cases, be the determining factor between a firm being able to thrive or be forced out of business. At a time when Scotland’s tech sector needs to maximise every economic advantage at its disposal, we would urge firms to review existing operations and consider if they may be able to claim for R&D relief.”
CASE STUDY: AMBICARE HEALTH
Johnston Carmichael assisted St Andrews-based Ambicare Health Ltd in securing R&D tax relief. Ambicare, previously known as Lumicure Ltd, has developed a portfolio of wearable light sources for medical and consumer healthcare applications, including a light-emitting sticking plaster for the treatment of non-melanoma skin cancer.
After assisting them in securing tax breaks for fundraising and the introduction of a share incentive scheme, Johnston Carmichael identified scope for claims for R&D tax relief for a number of new work areas. These included Ambicare’s development of treatments for skin cancer and acne treatment as well as research into a new anti-wrinkle cosmetic between 2008 and 2010.
Johnston Carmichael helped them identify approximately £418,000 of eligible expenditure which secured cash from HMRC of £191,742.
David Lawrence, Ambicare’s non-executive chairman, said: “For a small firm like ours, realising tax savings is essential to enhance our ability to pioneer new research and develop innovative products.
“Working with a firm like Johnston Carmichael, which understands which areas of development work qualify for R&D relief, has been invaluable and has enabled us to maximise the level of assistance from HMRC.”