R&D tax credits


Small firms could be missing out on tax breaks and incentives because they are not aware of what they are entitled to. This is according to a new survey by Baker Tilly, which reveals that many companies are not taking advantage of government schemes. The research found that only 15 per cent of small firms were aware of R&D tax credits, despite them being around for nearly 14 years.

R&D tax credits were first introduced in 2000 to try and encourage more investment in research and development. However, since their introduction, the benefits of these tax credits have become more extensive and allowed small firms greater tax breaks. HMRC has even expanded the way it determines which firms are eligible for the credits and the way it applies the rules to encourage innovation in the UK's economy. However, most of the claims are being made by large companies rather than small firms.

According to HMRC reports, large companies have claimed £780 million in R&D tax relief, compared to just £420 million by small and medium enterprises (SMEs). However, there was a low awareness about other tax incentive schemes, as just eight per cent of small firms knew about the Seed Enterprise Investment Scheme (SEIS) and just four per cent were aware of the Patent Box.

The most recognised tax incentive were Capital Allowances, with 55 per cent of respondents knowing about them.

Research also found that, once businesses knew about an incentive, they were likely to use it. This suggests that being aware of schemes is the main issue rather than companies not being interested in the benefits.

George Bull, tax partner at Baker Tilly, said: "The survey backs up what we already suspected, that many UK SMEs are missing out on generous R&D tax incentives.

"There’s clearly an issue of awareness that the government needs to address, but SMEs also need to take responsibility for finding out about R&D and other tax breaks on offer, in order to take advantage of all opportunities to grow.

Anecdotal evidence suggests there is a perception that R&D refers to lab-based work only, whereas a whole range of innovative measures in SMEs can be classified as R&D."


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