The pressure is on for small UK businesses to continue their innovation work, and keep on bringing new developments to the market. Yet, still, many companies are relatively unaware of the incentive that is available to them in the form of claiming R&D Tax Credits.
The latest stats from HMRC (for 2014/15) show that around 18,700 SME’s claimed R&D Tax Relief under the SME scheme, a 16% increase (YOY). However, it is estimated that of the thousands of companies who could claim, less than 5% actually do so. There is a huge opportunity for SME’s, from a range of industries, to be taking advantage of this incentive.
Below, we look at some possible explanations / misconceptions that may explain why most companies fail to claim:
- What does SME actually mean, and do I qualify as one?
SME stands for small to medium enterprise. To qualify as an SME, the company must employ fewer than 500 people, and have either an annual turnover of below €100 million or a balance sheet total not exceeding €86 million. This is generally a lot more generous than many traditional definitions of SME.
- I don’t have time to complete an R&D Tax Credit Claim, it’s too time-consuming
It is a common misconception that the process of claiming is time-consuming, and in small businesses, would require too much resource than is often readily available. Luvo Financial, over our years of experience, estimate that an average claim takes us, working with the client, a total of no more than 8 hours of dedicated time from the relevant individual(s) in the company. Working with a specialist allows you to focus on running the day-to-day business, whilst knowing the claim is being prepared in safe hands.
- HMRC don’t want us to claim, it’s risky, and could lead to broader tax investigations
R&D Tax Relief, which was introduced in the UK in 2000, is a Government scheme, whereby UK businesses are encouraged to innovate and invest in R&D activity, to ensure their industries continue to develop. HMRC want claims to be successful for these reasons. With specialist advice, you can avoid (uncommon) enquiries into R&D claims by ensuring the correct, qualifying costs are claimed.
- No one claims R&D Tax Relief from this sector
It is common (with first-hand experience) for some businesses to accept that R&D Tax Relief stays in the unknown grounds of that sector, i.e. none of my competitors claim, or other companies we know. However, this is often not the case. Generally, most companies that carry out R&D aren’t aware of the R&D Tax Credit offering and therefore do not claim through lack of awareness, not due to the particular sector they’re working in not qualifying. Most companies carrying out R&D activities will qualify for the relief, it is just a case of reaching out and confirming eligibility.
Many more sectors qualify for R&D Tax Relief than is generally thought; it is often misconceived that to be carrying out eligible R&D, the company must employ degree-level staff, or use hi-tech scientific labs, etc. However, again, this is just not the case. For example, we segregated our claims into broad sector varieties and show the percentage of claims occupied by those sectors:
(of all claims)
- IT: 25%
- Technology: 14.5%
- Food, Beveridge’s and Retail: 14.5%
- Manufacturing: 10%
- Engineering: 8%
- Other (Inc. Construction, Travel, Energy, Healthcare, Finance): 24%
Luvo has a 100% success record, meaning that each and every claim from all of these various sectors was approved by HMRC. This further supports the notion that many different industries will indeed qualify for R&D Tax Relief, should they be carrying out eligible expenditure.
There also appears to be ‘hot’ and ‘cold’ spots for the uptake of R&D Tax Credits, with some areas of the UK reaping the benefits, whilst some areas are still missing out.
The latest HMRC statistics show that whilst London is still in the lead with 19% of claims, the South East is catching up, now with an overall 18% of R&D Tax Credit claims in 2014-15. The North East and North West however, is lagging behind / missing out hugely with a much lower percentage of claims, despite many companies being eligible to claim.
Failing to claim R&D Tax Relief, that you are rightly entitled to, puts a great deal of unnecessary pressure on UK SME’s on the cash front. Innovation, researching and developing new products, processes, services and systems is all part of how an SME grows and becomes a main competitor in their specific sector…
If you would like to speak with one of the highly-experienced Partners at Luvo, free of charge, and with absolutely no obligation to proceed, give us a call on 01902 244210. We specialise and focus mainly on R&D Tax Credits, which is one of the reasons we continue to maintain our 100% success record, as we never proceed with a claim we aren’t 99.9% certain will complete.
Luvo Financial LLP, Hilton Hall, Hilton Ln, Wolverhampton, WV11 2BQ
Tel: 01902 244210 Email: firstname.lastname@example.org
Web: www.luvofinancial.co.uk #justaskluvo