SMEs claim nearly £1 billion in research and development tax credits

Small and medium-sized businesses claimed £970 million in R&D tax credits in the past year, up 24 per cent from £780 million in the previous year, but many companies are missing out on their full entitlement, reveals a prominent accountancy firm.

Small and medium-sized businesses (SMEs) claimed £970 million in research and development (R&D) tax credits in the past year, up 24 per cent from £780 million in the previous year, but many firms are missing out on their full entitlement, says Moore Stephens.

The firm explains that many SMEs fail to claim all the R&D tax relief available to them as many are not fully aware of the full range of activities included under the credits. In the past year, only 17,135 SMEs claimed R&D credits, an increase of just 7 per cent from 15,955 the previous year.

Moore Stephens comments that currently the small business sector is missing out on available funding as, although SMEs account for 99 per cent of all UK businesses, they receive only 48 per cent of total R&D tax credit funds.

IT and communication SMEs claim the most R&D tax relief at £275 million, followed by professional, scientific, and technical businesses which claimed £245 million.

Steven Levine, partner at Moore Stephens says, ‘Although SMEs claimed close to £1 billion in R&D tax relief, many undertake much more activity that they do not claim on.

‘R&D is not solely limited to laboratories and scientists, but is rather about wider technical problem solving. All businesses, especially SMEs, need to understand what relief they can claim or risk missing out on easy savings.’

Moore Stephens says that after Brexit, the government may no longer be bound by current EU regulations that restrict the amount of R&D relief offered to companies.

Levine adds, ‘Although the details would depend on the exact nature of the post-Brexit relationship with the EU, there may be an opportunity for the government to increase R&D relief which could further enhance the attractiveness of the UK as a place to do business.’

The firm says that the government has previously tried to introduce even further tax relief for a business developing new intellectual property through the patent box relief on corporation tax. In the first year of its operation, 465 SMEs used it, claiming £15.7 million in 2013-14.

Levine says, ‘The government had to modify the patent box regime because of EU rules, but, as a result of the Brexit vote, there may be scope for the UK to enhance it and give much more generous tax breaks.’

The patent box scheme allowed for a lower rate of corporation tax (10 per cent subject to phasing in transitional rules, rather than the standard 20 per cent) on profits earned from April 2013 on its patented inventions.

Further reading on research and development

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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R&D Tax Credits

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