R&D Tax Credits on the Rise in Dorset
Written by: Business Cash Enabler |
Rob Sowden of Bournemouth-based consultancy Business Cash Enabler reports an increase in Dorset companies benefiting under the government’s Research & Development (R&D) Tax Credits scheme.
“Many more Dorset-based businesses are now receiving benefit under this generous scheme, designed to reward unique innovation activities in business. For many years the scheme has seemed too good to be true to many companies who have not applied for the credit or cashback, due to many myths and misinformation around the scheme. Many businesses have tried to self-assess whether they qualify and have assumed they don’t; many have even been told by their professional advisors that they aren’t eligible, when in reality they are. One myth is that a business has to be profitable or has to be paying corporation tax to be eligible. Some find it hard to believe that they can receive an annual cash payment from HMRC when they are loss-making and not tax-paying. Reality is, they may receive a higher cashback payment than if they were profitable, because the scheme is based on costs incurred, not on revenue or profit. Typically, an SME can get back 33% of the amount they’ve spent on qualifying R&D.
“For the past five years I have been increasing awareness of the government’s innovation tax incentives. The R&D tax credits scheme was introduced back in 2000/01, yet it still seems to me that we are just at the beginning of awareness, even though £26.9bn has paid out since inception, it is still estimated that around 80% of eligible companies have not claimed or have under-claimed. Some clients have been assisted to claim by their accountant as they are in an obvious sector such as engineering or manufacturing. Interestingly though, many businesses that are not in these classic innovation sectors are also benefiting from the government’s R&D cashback, notably digital and IT in Dorset, but no sector is exempt if a business has truly innovated.
“The government paid out £4.3bn in the last reported year, with an average SME claimant receiving £53k annual benefit. Many companies that have previously claimed have received small amounts, £10k, £20k, £30k, when they may have been entitled to 2, 3 or 4 times that amount, often a healthy six-figure cashback. Under-claiming happens when the claim process is mistaken for an accountancy workstream, but it really requires a technical appraisal, combined with specialist knowledge of the legislation. Maximised claims are based on a technologist-led approach to ensure all eligible innovation activities are included in a claim and importantly, that projects that aren’t eligible haven’t been included, avoiding a potential HMRC clawback. It is possible to receive a claim shortfall for the prior two accounting periods, which can bring in an unexpected cash injection to a business – but there is a strict HMRC deadline for the prior two accounting periods, claim it or lose it!”
Business Cash Enabler provides a free service to businesses to check eligibility under the HMRC R&D tax credit scheme and advises on monetising intellectual property (IP) such as through the Patent Box tax relief scheme.