You’re probably aware of R&D tax relief, but here’s a very quick recap. Introduced by the UK Government in 2000, the R&D tax relief scheme is designed to encourage innovation and global competitiveness by allowing companies to reclaim money invested in qualifying research and development. Today, around 10,000 SMEs and over 2,500 large companies are claiming well over £1bn each year in R&D tax relief from HMRC, but thousands more aren’t.
Why are we telling you this?
In the current economic climate SMEs need all the help they can get and, statistically speaking, you’re likely to be among the companies currently missing out. According to HMRC, only 1 in 10 of eligible businesses are claiming, leaving an estimated £15bn in unclaimed R&D tax relief since the start of the scheme. That’s money you could be legally entitled to and that the Government wants you to have, as Mark Forrester, Managing Director of Occupancy Marketing, discovered.
“I did have one hesitation – surely it’s our duty to pay all relevant taxes and I was concerned about claiming to reduce our tax bill. However, having gone through the due diligence process, I realised what we were claiming for were the additional costs on our business that support future growth in employees, taxes and profit.”
You can see from the headline figures that we’re not talking small change. The scheme works by ‘enhancing’ the money spent on qualifying R&D and using this enhanced figure to offset profits, reducing your corporation tax liability. And the greater your R&D spend, the bigger the benefit!
It’s not just for profitable companies either. Loss-making SMEs can choose to receive their benefit as a very welcome cash credit. So even if you’re not paying corporation tax, you can still benefit.
So how much are we talking about?
The exact amount you can claim will depend on several factors. But, simply speaking, SMEs receive a generous 125% enhancement on their eligible expenditure. What’s more, you can claim for expenditure that’s up to three years old.
The following example uses nice round numbers, but it shows the basic workings that could apply to your business.
|Profit before R&D enhancement||£300K|
|Tax payable @ 20% (before R&D tax relief)||£60K|
|R&D enhancement (125% enhancement rate for SMEs)||£50K|
|Profit after R&D enhancement||£250K|
|Tax payable @ 20% (after R&D tax relief)||£50K|
Tax repayable to you
(as a result of R&D tax relief)
Think what you could do with the money
You may well want to re-invest the money you get back in further R&D, creating a virtuous circle of advancement while promoting a corporate culture of innovation. This benefits everyone: the claiming company stays ahead of the competition and increases its value; the UK as a whole maintains its status as a world leader in innovation.
“[We] recovered a hugely important five-figure cash lump sum that we can now reinvest into new engineering and moulding projects.” Gavin Ballantine, Managing Director, Ballantines
Although the money claimed can be used to offset future R&D costs, it doesn’t have to be. The scheme is one of the best ways of unearthing hidden cash reserves within your company that you can use to improve cashflow. This can be especially important for small, developing companies.
“A month after submitting this, a lovely cheque came through the door for us! This was a complete bonus and totally welcomed. We are a young, small company and cash flow can be a constant issue so this money has been really helpful especially in our expansion plans.” Alex Paton, Managing Director, We Hae Meat
Or you might have other priorities. You might, for example, decide to use the money to fund new jobs in support of expansion or to safeguard existing ones if you’re feeling the pinch.
“We were totally stunned at the amount claimed, we really couldn’t believe it. The tax benefit has allowed us to reinvest the money, buy new machinery and hire two new people. What a great result!” Rod Wah, Managing Director, Beverston Engineering
How you use the money is entirely up to you. The only certainty is that if you don’t ask, you won’t get. So why aren’t more companies claiming?
It really could be you
There’s a common misconception that you need to have labs full of people in white coats to qualify for R&D tax relief. That simply isn’t true.
As the UK’s leading technical R&D tax relief specialist, Jumpstart has more than 600 claims in progress at any one time for clients of all shapes and sizes, and in just about every sector. To date, it has saved clients over £43 million, ranging from bakers and brewers to software developers and textile manufacturers, using its rare blend of technological and business expertise to guide companies through the complexities of submitting claims to HMRC.
“When someone comes along and says that they can help you get cash back from HMRC, you think it must be too good to be true. However, Jumpstart’s service was superb. The process was smooth and their expert Technical Analysts were thoroughly professional in their approach. The whole experience has been excellent.”
Graham Porteous, Managing Director, Aberdeen Technical Services
Too good to be true?
Keen to know if your company could benefit? Take the 20-second test below.
Does your company:
- attempt to develop new technology rather than just using what’s available, and perhaps not always successfully due to the technical difficulties involved
- try to make measurable, objective and significant improvements to the design and implementation of its products and processes, and
- when faced with a challenging technical problem, use internal, qualified and experienced staff to design the solution?
If the answer’s ‘yes’, there could be a substantial cheque with your name on it.
To find out for sure, let Interface put you in touch with an expert member of the Jumpstart team, safe in the knowledge that if you don't ultimately qualify for R&D tax relief you won't owe anyone a penny, as the work is carried out on a no-win, no-fee basis.
You really do have nothing to lose and everything to gain!