Paul Halliday, Innovation specialist at GC Business Growth Hub, on why companies that are involved in research and development activities but not currently claiming tax relief are missing out on a sizeable cash injection.
This page was updated on 22 April 2021.
Cash has always been king, but in the COVID-19 world we’re living in now this saying has never been more relevant.
As businesses in Greater Manchester and all over the UK address the major impact Coronavirus is having on their sustainability and prospects, and look at opportunities to generate cash from a wide range of sources, one area worth close attention is the R&D tax relief scheme.
For a quick incentive to read on, let me mention one medium-sized SME currently working with the innovation team at the Hub, which made a claim under the scheme last week for more than £20,000; this money should land in the company’s bank account within a couple of months. And it’s worth also noting that this claim related to backdated expenditure covering the last two years.
So what is the R&D tax relief scheme for SMEs?
The scheme is designed to encourage innovation in the UK by allowing businesses to offset research and development investments against corporation tax.
R&D tax relief can be claimed by a wide range of companies that seek to research or develop an advance in their field. This doesn’t just mean people wearing white lab coats; in fact, often SMEs can be carrying out applicable R&D projects without being aware of it.
Eligible innovation projects can include the research or development of a new process, product or service, or improvements to an existing one. The claim can include a proportion of salaries/wages, Class 1 National Insurance contributions and pension fund contributions for staff working directly on the project, as well as subcontractor costs and related software licences.
How much is it worth?
For every £1 of identified R&D cost you could save 26p in Corporation Tax, or in some cases – for example, if you’re making a loss, or have already paid your tax bill – receive a cash payment of 33p.
The added benefit for companies new to the process is that claims can be made going back two tax years. If a successful claim can be made this can present a golden opportunity to claim back monies from HMRC.
Does COVID state support affect my claim?
A business’s claim for R&D tax relief may be affected if it is receiving Government COVID-19 state support. This depends on the kind of funding received. In short, under normal circumstances, if a project benefits from notified state aid funding - Coronavirus Statutory Sick Pay Rebate (SSPR), for example - its R&D claim may be affected. These are clearly anything but normal circumstances, however, and it’s essential for businesses needing cash to seek specialist advice.
What do I do next?
If you answer yes to the checklist questions below, the Hub’s innovation team can help direct you to specialists in the field:
- Are you an SME with less than 500 staff and turnover under £100m?
- Are you a registered UK limited company?
- Do you pay Corporation Tax in the UK?
- Are you spending money in order to make technological or scientific advances?
- Are you trying to overcome uncertainty and are incurring costs in the process?
Paul Halliday, Innovation Advisor
Paul has extensive experience of working with SMEs, and helping to drive profitable growth by using proven innovation tools and techniques. He has worked with owner managers and senior management teams across a wide range of sectors including advanced engineering, manufacturing and professional services.
Paul also has wide general management experience and has had day-to-day responsibility for sales, new product development, operations and administration, experience which enables him to rapidly gain an understanding of the issues impacting on growth potential and quickly identify tangible, realistic and innovative solutions to drive business forward.
He has an MBA from Manchester Business School, an Honours Degree in Mechanical Engineering and post graduate qualifications in Finance and Accounting.
The information provided is meant as a general guide only rather than advice or assurance. GC Business Growth Hub does not guarantee the accuracy or completeness of this information and professional guidance should be sought on all aspects of business planning and responses to the coronavirus. Use of this guide and toolkit are entirely at the risk of the user. Any hyperlinks from this document are to external resources not connected to the GC Business Growth Hub and The Growth Company is not responsible for the content within any hyperlinked site.