South West firms missing out on millions? Tony Moorby discusses
With thousands of businesses across the South West still not claiming the Research and Development tax credits they may be entitled to, BLM spoke to Tony Moorby at accountancy and business advisory firm BDOLLP to find out more.
Can you tell readers about R&D tax credits?
R&D tax credits are a very valuable tax relief that is available to any company carrying out qualifying research and development.
From April this year, SMEs can claim a deduction of an extra £1.30 in their tax computation for every £1 they spend on qualifying R&D. Since the launch of the scheme 15 years ago, more than £9.5 billion has been claimed in relief.
Any company carrying out R&D activities that meet the criteria for the relief can claim it, but claimant companies are concentrated in the manufacturing (30% of all claims) and IT (27%) sectors.
Are enough companies making claims?
About 16,000 companies made claims in 2012/13; almost 40% of those were in London and the South East and only 8% were in the South West, which suggests that companies in our region may be missing a trick.
Although this scheme has been around for 15 years, too many businesses still aren’t claiming R&D tax credits.
What impact has the scheme had on those firms that have implemented it?
I recently met with the owner of a successful business that wasn’t claiming R&D, and has recently started doing so. On finding out how it could help he said: “This is great as it enables me to spend more on important projects that will develop the business”.
For the government it is also an important scheme. Although they are effectively giving tax away, these firms end up spending more on their businesses and therefore boost the tax take. Recent figures show that for every £1 saved in tax, between £1.53 and £2.35 of additional expenditure is made by companies.
So why aren’t firms claiming?
They are simply not aware that they may be able to claim the relief. For some, it’s the belief that the mechanism for claiming is too complex.
For example, I recently met the director of a multi-million turnover business who had never heard of R&D tax credits.
Following a brief discussion with him it was clear that the company may be able to make a claim which will result in a tax refund of £20,000 to £30,000.
What types for firms can apply?
Bristol and the South West are strong in the two most prominent sectors for R&D claims – yet only 8% of claims have been made by companies here in our region.
Within the manufacturing and TMT sectors, biotech and pharmaceutical firms, food and drink processors and IT/digital consultancies may be the main businesses missing out.
So what is being done to change this?
To help address under-claiming, HMRC is planning to introduce a new simplified process for SMEs claiming R&D tax relief for the first time.
We are awaiting the details but it is planned that HMRC will adopt an ‘advance clearance’ procedure enabling businesses to obtain advance approval for their claim, via direct contact with one of HMRC’s specialist R&D units.