Innovative businesses can still benefit from R&D tax credit scheme: Anne McCoubrey

Innovation is the lifeblood of any business, but research and development (R&D) can be both costly and risky. That’s why the UK government offers schemes to support SMEs with R&D Tax Relief encouraging companies to invest in innovative ideas, while helping them to offset the costs.

The changes that have come into force from April 1 result from HMRC wanting to reduce the chance of erroneous or purposefully incorrect submissions being made.

The SME R&D Tax Relief is designed specifically for small and medium-sized enterprises (SMEs) with less than 500 employees and either an annual turnover of less than €100 million or a balance sheet total of less than €86 million.

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This scheme allows companies to claim 186 per cent of qualifying R&D expenditure from April 1. Companies can use this enhanced deduction to reduce their corporation tax bill or, if they are not profitable, they can surrender it to receive a cash payment from HMRC of up to 10 per cent.

Anne McCoubrey of Walker & SutcliffeAnne McCoubrey of Walker & Sutcliffe
Anne McCoubrey of Walker & Sutcliffe

This scheme can be particularly valuable for companies that are not yet making a profit, as it allows them to receive a cash payment even if they do not have a tax liability. Ultimately, a company can surrender losses that have been enhanced through the scheme.

In further changes, HMRC has extended the eligible categories for the scheme. These will now include pure mathematics, data sets and cloud computing, and despite suggestions that claims made for overseas consultants would become ineligible, this has not yet been enforced.

Ultimately, changes withstanding, there are many benefits to these R&D tax relief scheme that UK businesses should take advantage of. Firstly, they provide a significant financial incentive for companies to invest in R&D projects.

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By offering tax credits or cash payments, the scheme helps to offset some of the costs and risks associated with being more innovative. This can be especially valuable for SMEs, which may have limited resources and find it challenging to raise funds for these projects in other ways.

Secondly, the scheme can help to promote innovation and creativity within businesses. By providing a financial incentive for R&D, the scheme encourages companies to explore new ideas and technologies, which can lead to new products, services, and processes.

This can help organisations to stay competitive in the marketplace and to differentiate themselves from their competition.

Thirdly, accessing SME R&D Tax Relief scheme can help companies to develop new skills and capabilities.

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R&D projects often require specialist knowledge and expertise, which can be developed through training and collaboration with other businesses, universities, and research organisations.

By investing in R&D, companies can develop their own knowledge and expertise, which can be hugely valuable in the longer term.

Finally, accessing the scheme can help companies to build their reputation and profile. The scheme demonstrates that a company is committed to innovation and is willing to invest in new and often more radical ideas.

What businesses must remember however, is that they need to comply with the updated requirements from HMRC.

Anne McCoubrey is Tax Manager for Walker & Sutcliffe

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