It’s good news with improved support for small business innovation through a new Research and Development tax relief plan.
Research and Development Tax Relief was introduced in order to enable smaller companies to be able to afford to ‘research and develop’ their products. They can offset the substantial costs of such investment against their profit, thereby reducing their Corporation Tax bill. This translated into £1.75 billion pounds of R and D tax relief paid back to businesses in the 2013-14 tax year; which is an increase of more than £750 million since 2009-10.
R&D Stats
HMRC’s 2013-14 tax year statistics tell us that 15,000 ‘Small and Medium Enterprises’ (SMEs) applied for R and D tax credits. Whilst this is 19% more than 2012-13, the government wants to encourage even more smaller businesses to receive this tax relief. They found that every reclaimed £1 turned into between £1.53 and £2.35 worth of research and development investment.
SMEs can benefit from the so-called “super deduction”, which means they can cut their R and D costs by 46% because their profits that are eligible for Corporation Tax can be slashed by 230% of their R and D spend.
What HMRC found out
After a consultation process, carried out by HMRC, four main areas have been identified which they hope will increase the number of businesses applying for R and D tax relief: Awareness, Design, Understanding and Administration.
This new 2-year plan was launched by David Gauke, the Financial Secretary to the Treasury, he said:
“R&D is crucial for the long-term growth of the UK economy. Over 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but we need to go further to support pioneering small businesses.
That’s why we’ve published a document setting out our plans to increase awareness and make it easier for people to apply.”
What are the R&D tax credit changes?
One of the most immediate changes was implemented in November 2015 and is called ‘Advance Assurance’. This means that SMEs are ‘assured’ that their R and D tax relief claims will be approved for three years with no follow up investigations from HMRC. This enables these companies to make financial plans on a more secure basis. This will only be applicable to small companies who have an annual turnover up to £2million and under 50 employees and are claiming R and D for the first time.
Other parts of the plan involve developing guidance for the application process with the people who are using it. HMRC have also made a commitment to seek out companies who have participated in Research and Development but who have not been claiming their R and D tax relief. They propose working alongside other government agencies to fulfil this target.
Mr Gauke presented the launch of this plan at a thriving, cutting-edge British company called Vivobarefoot. Galahad Clark, its CEO, said:
“Innovation is at the heart of what we do. We are proving that the modern shoe industry, with its padding and support are doing more harm than good and the modern world has a movement crisis.
It’s good to have the government support us against the biggest brands in the world on what we think is a very important social mission.”
This specialist shoe designer has reinvested 5 years’ worth of R and D tax relief in growing their business and now competes in the worldwide sports shoe market.
