It is a sign of the resilience of business in the UK, that despite the many problems faced during the pandemic and post-Brexit, small and medium-sized firms (SMEs) are increasingly the driving forces of the British economy.
Figures from the Office for National Statistics show that they accounted for more than 99 per cent of the business population at the start of 2019, so they are the lifeblood of the country.
Nowhere is that more evident than the number of SMEs driving the growth of Research and Development (R&D) tax credit claims.
Launched in 2000/01, the scheme enables firms to claw back tax for every pound spent on innovation. An SME can claim tax relief on up to £230 for every £100 spent on research and development
The latest figures from HM Revenue & Customs shows a 25 per cent increase in claimants for the SME scheme in the year to 2018/19 and a seven per cent increase in Research and Development Expenditure Credit (RDEC) claimants.
To qualify the company must be carrying out research and development work in the field of science or technology.
The relief is not just for laboratory-based scientific research but also for industry development work in design and engineering that involves overcoming difficult technological problems and creating new patents.
Some examples of qualifying activities include:
- Software development
- Engineering design
- New construction techniques
- Bio-energy
- Agri-food and life
- Health sciences
Large companies claim under the research and development expenditure credit (RDEC) scheme, while a separate scheme operates for SMEs.
Sharp increase in expenditure claims
HMRC says the latest available data show there were more than 85,900 R&D tax credit claims in the year ending March 2020, which showed an increase of 16 per cent compared to the previous year.
Of those claims, SMEs made 76,225 claims in the 12 months to March 2020 which was a 16 per cent rise compared to the previous year. This includes 38,050 claims for a deduction from Corporation Tax liability and 38,175 claims which include a payable tax credit.
The amount of R&D expenditure upon which tax relief is claimed has shown a sharp increase since 2014. This is attributed in part to the removal of the minimum expenditure threshold of £10,000 from April 2012.
Total value of claims and expenditure rising
The total value of support claimed through the scheme, meanwhile, is estimated to be £7.4 billion, up 19 per cent, or around £1.1 billion, compared to the previous year. The total value comprises £4.4 billion through the SME scheme and £3.1 billion from the RDEC scheme.
Judging which projects and activities will qualify for R&D tax relief is usually the area where most people seek help and that is where our team of R&D experts can help.
For help and advice on R&D tax credits contact a member of our expert team today.