September 29, 2014

A very good indicator of an economy’s future prospects at any given time is the amount that’s being invested by business in research and development activities.

An increasing spend in this area would suggest that companies have the confidence, the ideas and the resources to focus on their medium-to-long term prospects, rather than just having to focus on the present, as so many have been forced to do in recent years.

The latest figures released by HMRC would suggest that spend in this area is growing on the back of the economy’s recent improvement, with 13,010 claims for R&D tax relief lodged under the SME scheme in 2012/13. This represents a 30% year-on-year rise from the previous year, and is the largest number since the scheme was introduced in 2000.

The HMRC figures also show that R&D tax relief is not just the preserve of manufacturing companies. Although that sector still has the most applications (3,970, for relief of £165m), information and communications companies put in 3,585 claims, and professional, scientific and technical businesses accounted for 2,410 applications, for a total of £145m in relief.

Originally introduced in 2000 in an attempt to encourage research and innovation, they have been a regular feature of Budget speeches over recent years.

But despite this, many management teams are simply not aware of the reliefs available, or that the relief is not just wrapped up in a form of scientific discovery, but can also apply to a wide range of manufacturing activities and related staff costs.

The level of corporation tax relief for SMEs has been more than doubled to 225% of qualifying R&D expenditure over the last two years, which is a figure that could make a massive and immediate difference to the amount of working capital available to any company, and the £10,000 a year minimum spending limit has been scrapped.

Alongside this, it’s easy to take too narrow a definition of the term “R&D,” which doesn’t have to relate to ground-breaking new technologies that are going to change the face of an industry forever.
Our experience is that most manufacturing businesses will be undertaking development of some kind and will hence have qualifying expenditure.

HMRC has (perhaps uncharacteristically generously) broadened its interpretation of the R&D tax relief rules to apply more widely, to provide a greater stimulus to innovation, so if you think any activity that your company is currently undertaking could fall inside these boundaries, it could be well worth taking the time to find out for sure.


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