UK SMEs owed £84Bn in R&D tax relief by Treasury

Research shows the government is sitting on billions in unclaimed tax relief.

Research into R&D tax credits for SMEs has shown that only around 1% of UK small to medium businesses have ever claimed the relief.

With SMEs not claiming what they are entitled to, the Chancellor of the Exchequer is sitting on an SME goldmine worth £84.2bn, data suggests. To put this into perspective, this is approximately twice the annual budget of the Ministry of Defence, and enough money to run the NHS for eight months.

What is the R&D Tax Relief?

The simple reason the tax relief is not being claimed is due to the lack of education around the tax break. Experts within the industry believe it has been advertised by the government to UK SMEs poorly.

R&D tax credits were created in 2000 by the government as an incentive for UK companies to invest in research & development. A staggering £21.4bn has been claimed in tax relief since then, in the form of 240,000 claims.

These tax credits were put in place to encourage innovation, in order to ensure the UK can compete with the biggest global superpowers. The tax relief can help reduce a company’s corporation tax bill, or can be claimed as a cash sum reimbursement from the HMRC.

Companies can claim relief on research and development costs in relation to, in the government’s words, “a project that seeks to achieve an advance in overall knowledge or capability in a field of science or technology”.

However, this is slightly misleading, as the companies in question do not need to be researching brain surgery or creating a new jet engine. Companies can claim relief on a whole host of research and development projects, including a new recipe for beer, hazardous substance management, an engineering process, or new processes for web development.

How many UK SMEs are missing out on R&D Tax Relief?

There are approximately 3.5million SMEs actively trading in the UK, with 57% of them eligible for R&D tax credits. Of the 57% eligible, only 1% have ever claimed the relief.

This means that approximately a staggering 1.97million SMEs are potentially owed tax relief.

The trend in uptake, however, is positive. For 2016-17, 39,960 R&D tax credit claims were made, with over 34,000 of these being made in the SME R&D scheme. This figure is still incomplete, however, due to the delay in reporting. This figure is expected to rise, meaning the full amount will equal the highest ever tally in the 18 years since the tax relief initiative has been in place.

How much is the R&D Tax Relief worth to SMEs?

The fact that only 1% of those eligible are claiming the tax relief is even more astounding when you factor in the average claim for SMEs. Reports suggest that the average claim for UK SMEs for R&D tax relief hovers around £43,000 – £62,000.

The claim can also be backdated by up to three years, meaning if SMEs have already taken part in research and development, they could be sitting on extra cash.

These figures are incredible when thinking about the current business climate and the headwinds many companies face in today’s market. £50,000 is an amount which would be invaluable to any business.

How can rdtaxcredit.org.uk help?

There were nearly 7,000 first time applicants last year, and if your company was not one of them, your competitor may well have been. These were UK SMEs in a whole range of sectors, actively involved in R&D, investing time and cash on improving products and services, and being subsidised by the government to do so.

At rdtaxcredit.org.uk, we are helping many SMEs to understand this little known tax relief better. While we believe the government needs to do more to educate businesses in relation to R&D tax credits, our experts are also providing SMEs with information, and guiding them through the step-by-step process.

We are also educating SMEs that are aware of the tax relief, but are simply not getting the most out of it. Some are underclaiming due to a lack of comprehensive understanding about some of the subtle details of the R&D guidelines. In addition to this, some SME owners believe R&D Tax Credits are only available for traditional research sectors.

Many SME owners that we have come across simply think the tax relief is too good to be true, and there must be a catch. This is leading to many company owners missing out on this legitimate financial reward for their valuable investment within their industry.

Get in touch for advice

At rdtaxcredit.org.uk, we understand that beginning to think about claiming R&D Tax Credits may be a little daunting. We want to help you through the process, to ensure you receive the financial reward that the government wants to give you.

We offer a friendly and professional approach to R&D Tax Credits which includes: