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The importance of R&D tax credits to each business

Business Solutions (Midlands) Ltd are an independent consultancy, their primary focus is providing expert advice to clients on maximising their research and development tax credit claims. To date, they have successfully claimed back over £4.5m in R&D tax credits. During his presentation, Mark Paul, director of Business Solutions (Midlands) Ltd, told us about the benefits companies can obtain from receiving R&D tax credits.

The Research and Development Tax Credit scheme is a HM Revenue and Customs (HMRC) incentive designed to encourage innovation by companies operating in the UK. However, we believe the scheme is currently significantly underused, and many SME’s are not taking full advantage of what is on offer for them.

The Government has set a target of 2.4% of GDP to be spent on research and development (R&D) activity by 2027. Presently, 28% of all SME tax relief in this area goes to companies who are focused in information and communications technology. Latest figures available show that £3.5bn was claimed in R&D tax credits in 2016/17 and HMRC believe this could multiply and stimulate up to £8.2bn of additional investment into R&D activity.

So, what are some of the benefits companies can obtain from receiving R&D tax credits?

  • It provides a cash injection to reinvest back to the business
  • Effective R&D activity can provide companies with competitor/first mover advantage in their markets
  • The availability of an ongoing tax benefit as credits can be claimed on a yearly basis

It is a common misconception that only large companies can claim these credits. Any company can claim R&D tax credits.

So, how do you know if you might be eligible to claim these tax credits? If your company undertakes the following activities, then you are eligible to claim.

  • Develops new products or processes
  • Is involved in innovative or bespoke product or process development on behalf of clients
  • Continually looks to improve products or processes to meet customer requirements

A lot of people do highlight barriers that stop companies from claiming.

  • The interpretation of the qualifying criteria can lead to some companies failing to recognise the actual projects and associated costs that are eligible for the relief
  • Constant legislation changes, the budget is an annual event
  • The need to produce robust documentation – because of this, it is not always seen as a priority when running a small business
  • There is a hefty time commitment involved in completing the application process
  • Participants not clearly understanding the process for making a successful claim

But we feel that if companies obtain the right advice from companies like ourselves, then the positives outweigh the negatives and if your business is focused on the innovation of products and processes then you could be missing out.

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Mark Paul, Director at Business Solutions (Midlands) Ltd