Small businesses investing in innovation are not taking advantage of available tax relief, a new report claims.
According to the HMRC’s latest figures, small business across the UK are missing out on potential funding due to a lack of awareness surrounding tax relief available for those investing in innovation and development.
Since launching the scheme in 2000, over £26.9bn has been claimed by qualifying businesses.
Despite a 22% increase in companies applying for the scheme in 2017/18, David Redfern, director of DSR Tax Claims notes, almost half of the claims are concentrated in London, the South East and East Anglia limiting the scheme’s reach both geographically and within the business sectors it benefits most.
“Only one in five small businesses in certain industry sectors, such as engineering, who have valid claims are applying for this tax relief,” Redfern detailed.
A major reason for the lack of applications is believed to be businesses not knowing if their application will be accepted but, Redfern notes, there are process in place to mitigate businesses concerns.
“HMRC runs a scheme called Advance Assurance, which is aimed at SMEs and provides those businesses with a guarantee that their R&D Tax relief claims will be accepted, providing the claims remain in line with what is discussed and agreed with HMRC,” Redfern continued.
Businesses need to be planning or have already completed R&D and must not be a part of a group of companies that have already made a claim as well as being a small-to-medium enterprise (SME), as defined by HMRC.
In order to apply for Advanced Assurance confirming their tax relief, SMEs must submit their company accounts and Companies House registration alongside any previous tax returns to prove their eligibility as well as a contract detailing R&D projects being planned or undertaken.
The SME R&D tax relief scheme does come with a number of requirements for eligibility that include having fewer than 50 employees, an annual turnover of less than £86.3m (€100m) and a balance sheet of less than £74.3m (€86).
Regarding what is covered, Redfern detailed: “There’s a wide range of covered expenditure, including employee costs, subcontractor costs, software and consumables but certain costs such as rent, land and capital expenditure can’t be claimed for”
Full details of the SME R&D tax relief scheme are available alongside HMRC’s guidelines explaining what is accepted as research and development under the scheme.