R&D tax credits utilised by businesses at record rates

New statistics from HM Revenue and Customs (HMRC) suggests more UK small businesses are claiming R&D tax credits than ever before. The figures show a 22% year-on-year increase in the number of claims from small firms, amounting to £905m in cash payments from HMRC in the 2015-16 financial year.

When combined with the large company R&D scheme and the Research and Development Expenditure Credit (RDEC), the amount of money HMRC has handed out to UK businesses reached £2.78bn in total for 2015-16, with average claim values up across the board year-on-year also.

Nevertheless, Jenny Tragner, director, ForrestBrown – an approved TaxAssist Accountants partner for R&D tax credit consultancy – believes the scheme is still underused by too many growing businesses.

"We see that day-in-day-out,” Tragner said.

"Either businesses just didn’t know about the scheme, or they thought they didn’t qualify. There are still a lot of companies that aren’t claiming that should.”

Despite many firms still not claiming what they’re entitled to, Tragner, who is a member of HMRC’s consultative committee on R&D, is pleased to see the number of repeat claimants on the rise as firms become more experienced in capturing qualifying projects and prospective research costs.

"We’ve also seen the companies we work with start to change. They are becoming comfortable with identifying what relief they are going to get year-on-year,” added Tragner.

"They can now factor that into investment and day-to-day decisions.”

The data also suggests that RDEC is becoming a more popular tool for small businesses, with an 850% increase in the amount of relief claimed by smaller firms since its 2013 introduction.

With small businesses also claiming RDEC, Tragner believes the government should look to combine both reliefs under one umbrella, in a bid to reduce confusion and simplify the R&D landscape for growing businesses.

"We have lots of complexity in terms of running two different mechanisms of relief,” said Tragner.

"We’d like to see the government simplify it by putting everyone onto the same model.

"Still have different rates, so you have more generous rates for SMEs, but have the same model so people can get more comfortable with the different rules.”

Last updated: 22nd September 2017