We ask Henry Poultney of R&D tax relief consultants Fiducia to analyse HMRC’s recently published statistical survey of companies claiming R&D tax credits.
HMRC’s recently published annual report on companies claiming R&D tax relief once again demonstrates an annual increase in the number of companies claiming this increasingly popular tax relief. Analysis of the financial year ending March 2020 shows a 16% increase in the number of claims for R&D tax relief to a total of 85,900 – with 76,225 of claims being made by SME’s.
It is disappointing to note however that, despite year-on-year rises in companies claiming this valuable tax relief since the scheme was introduced in 2001, a significant number of companies who invest in research & development still fail to claim what is rightfully theirs.
And nowhere is this more true than in the manufacturing sector. Whilst HMRC’s statistics show that the manufacturing and information & communication sectors lead the way in terms of the number of claims submitted, the actual percentage of manufacturing companies submitting claims is astonishingly small.
When you consider that the average value of R&D credits paid to SME’s by HMRC in the year to March 2020 was £57,723, why is it that so few companies that are entitled to claim, fail to do so?
To put this into context, a briefing paper published in December 2018 by the House of Commons Library Research Service, suggested there are 290,000 active manufacturing companies in the UK. HMRC’s statistics show that less than 7% (18,898) of these manufacturing companies claimed R&D tax relief in the year to March 2020.
When you consider that the average value of claims paid by HMRC in the year to March 2020 was £57,723, why is it that so few companies that are entitled to claim, fail to do so?
The reasons are many. Despite the year-on-year increases in take up of the scheme (HMRC reported a 16% rise in first-time claimants in the year to March 2020), awareness and understanding of the scheme remains low.
Many business owners who are actually aware of the scheme fail to make a claim – despite the massive cash boost it can create for a business – because the owner is so wrapped up in the day-to-day running of the business that he/she are not able to set aside an adequate amount of time to formulate a claim. (I refer to it as a massive cash boost because of HMRC’s two-year rule that allows companies to backdate claims for their two previous financial years).
For many busy company owners, the major stumbling block to submitting a claim is the need for the claim to be supported by a technical document that defines how their own R&D activities satisfy HMRC’s claim acceptance criteria.
And this is where specialist advisers such as Fiducia can take the burden of formulating a claim away from the business owner.
With a 100% claim success rate, we can usually determine whether a company’s activities are likely to qualify for the R&D scheme with just one relatively brief telephone call.
Check our website to find out more and give us a call to establish if your company qualifies for this valuable tax relief.
* Source: National Statistics Research and Development Tax Credits Statistics: September 2021