Something for nothing? R & D tax credits

We are told that if anything looks too good to be true, it usually is and it is also a rare occurrence to get something for nothing from the government. But, as Roger Manners explains, that is exactly what is on offer through the R & D tax credits scheme which was extended at the last budget.

Operated by specialist designated offices of HMRC, R & D Tax Credits are available to SMEs that meet three simple criteria:

The business has been a limited company in the UK for at least 12 months
The company manages PAYE and makes National Insurance Contributions
Investment has been made in developing innovative or appreciably improved technology, software, IT solutions or products, materials, services or manufacturing processes or services

That makes it possible for thousands of businesses within those sectors to make a successful claim.

The R&D Tax Credit Scheme is an EU initiative that enables companies to recover part of their development costs invested in innovative product and manufacturing processes. The scheme is a key part of the Government’s strategy to boost innovation in business and they reduce the real cost of investment, improving products and processes.

Claims can be made for the previous two financial years and SMEs can benefit in cash terms whether they have made a profit or a loss; there are an estimated 150,000 SMEs that could benefit from the scheme. There is also an equivalent large companies scheme in place funded by the UK government.

In my experience 95 per cent of companies they meet are eligible for the scheme yet most are unaware of their entitlement.

So what can you gain from an R & D Tax credit claim? The average HMRC R&D Tax Credit claim for SMEs is £40,000 p.a. and £300,000 p.a. for large companies.

Companies can claim for their previous 2 accounting periods as well as the current period. That is an average £120,000 back for a first time SME claimant and an on-going £40,000 p.a. for every year they qualify. Those figures are based on HMRCs average SME £ annual claim. HMRC state that the average time to cash from filing your claim is just 42 days.

In these tough economic times when banks are reluctant to lend, this has been an absolute boon in additional positive cash flow to many companies. Companies do not have to be making profits to make a claim and claims can be made for failed projects, not completed or taken to market.