More SMEs claiming for R&D tax credit

Friday 23 August 2013

New data released by HM Revenue and Customs (HMRC) has revealed that more firms are claiming Research and Development (R&D) tax credits.

Its 2011-12 annual report Research and Development Tax Credits Statistics reveal that total claims were up by 16.4 per cent on the previous year to a total of 12,190. However, much of this increase was led by small and medium enterprises (SMEs) as more take to tax planning to ensure they are fully leveraging their position.

Between 2010-11 and 2011-12, SME claims rose by 20 per cent, large company claims rose by eight per cent and large company sub‐contractor claims decreased by five per cent.

Since 2008-09, the number of R&D tax credit claims from SMEs has increased by 49 per cent. However, although there is a higher percentage of SME claims, the majority of funds went to large organisations as they tend to claim for more money. Last financial year, total claims represented £1.2 billion of tax relief support, based on £11.9 billion of R&D expenditure.

R&D tax credits were first introduced to SMEs in 2000 and extended to large companies in 2002. A SME can claim a higher rate of relief than larger firms and those that do not have a tax bill to reduce are entitled to claim for a cash payment instead.

Since the scheme was introduced, nearly 85,000 claims have been made and businesses have received more than £8 billion in tax relief. In the past 12 years, 24,000 different SMEs have claimed, illustrating how important this scheme is.

The increase in R&D expenditure by companies claiming under the SME scheme was 13.9 per cent year on year. This is just over double the increase seen for those claiming as large companies, which was just 6.8 per cent.

This rise could illustrate that SMEs are becoming more innovative, but it also suggests that SMEs are more aware of their tax entitlement. If the UK wants to remain competitive, it is essential that businesses of all sizes continue to innovate and lead the way in their field.

Speaking to The Manufacturer, economist at EEF Felicity Burch said: “The SME R&D tax credit is an important scheme which can help companies with cash flow and encourage a virtuous circle of investment in R&D and innovation.”

By investing in innovation, the UK will take a key step to improve the economy in the long term.

She said that the recent increase in the number of firms receiving tax credits for research and development could be because of  the improvements of the administration of the scheme, as well as the stability of the tax system in the past three years. This inspires trust from small businesses, but also gives them the confidence to invest in research.

However, she warned that although the figures are promising, HMRC must ensure the trend continues.

“The UK still has a long way to go, as levels of R&D expenditure lag well behind those of our competitors,” she said.

By Victoria McDonnell

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