Questions about R&D Tax Relief by Region and Sector. | Fearless ...

R&D Tax Relief returns over 15% of the cost of solving technical challenges in Product Development.
Claims average over ?40k and cover the current and two prior years. Claims can be made by start ups against PAYE and National Insurance if they are not yet paying Corporation Tax. Businesses should not miss out on this entitlement.
It is the most important and rewarding of the incentive schemes for growth through innovation.

Every year HMRC provide data on the uptake of the scheme by region and sector.

As practitioners in R&D Tax claims we have a commercial interest in evaluating the data and testing our conclusions with others.
We want to discover more about the regions and industries that might be underclaiming and understand if there is opportunity for us to process more new claims.
That said, we also believe innovation is central to our national capacity to cope with an ageing population, debt burden and rising NHS costs.

By talking to claimants and policy makers we are aware that there are many misconceptions about the scheme.
We wish to challenge readers of this post to argue with our assertions so that we can better understand the challenges in helping others use the scheme.

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Consideration 1 ? awareness and take up across the UK remains low.

Between 2009-10 and 2010-11? 710 ?new? SME claims were made which is roughly 13 new claims per week.
Once a company begins claiming common sense suggests that they will continue to claim if they can.
Hence we should consider the numbers cumulatively. Growth appears to be slow. Is that the right conclusion to be drawn?

We estimate, based on our own investigations, that there are 150,000 businesses in the UK with 10 or more staff paying Corporation Tax.
If cumulatively only 10,070? have made either the SME or Large Scheme claims that?s a penetration rate of 6.7%.
This ignores the SMEs under 10 employees of which there estimated to be up to 9 million although many will not have R&D capability outside technically specialist businesses.
Are we correct in suggesting that 6.7% of UK businesses actively innovating around technical challenges understates our national inventiveness?
Is that figure a good reflection of the scheme meeting its primary purpose or not?
Perhaps misconceptions about the effort and time required to claim and the likely claim values are discouraging claimants?

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http://www.hmrc.gov.uk/statistics/research-tc/rd1.pdf

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Consideration 2 ? Large Companies are aware and claiming but innovative SMEs are not.
The awareness challenge is acute amongst high growth potential SMEs.

Large Companies can count only 30% of their R&D costs towards this tax relief whilst SMEs can claim up to 125%.
2450 Large Companies (more than 500 employees) claimed ?750m despite claiming at the 30% rate versus ?340m from 8170 SMEs.
However the evidence suggests that it?s smaller companies that fuel economic growth.
Those businesses that could benefit most are much less likely to claim than Large Companies who employ expert Tax Departments.
http://www.hmrc.gov.uk/statistics/research-tc/rd2.pdf

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Consideration 3 ? lower awareness in the regions may explain why their SME claims are well below the UK average.
Taking the SME total claims at ?343m expressed by head of UK population at 63m produces an average value of ?5.40.
For Wales the figure is ?2.33, Scotland ?3.84 and Northern Ireland ?2.77 per head.

Innovative businesses with high growth potential in the regions are missing out on the most valuable tax break.
Perhaps regional small business advisory services assume that the scheme is for High Tech Corporations only and misunderstand the definition of R&D in the scheme.

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http://www.hmrc.gov.uk/statistics/research-tc/rd5.pdf

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Consideration 4 ? awareness is lowest amongst SMEs outside Manufacturing and Software Development.
Low awareness in sectors such as Agriculture, Mining and Transport is compounding the regional bias.

Public Administration and Defence are also well represented in the regions and are significant investors in R&D yet claims are low.

There may be a misconception that claims must come from High Tech sectors. In reality the scheme is designed to improve competitiveness across all areas.
When fresh thought is given to concept creation or the improvement of a product or service and the technical obstacles which must be overcome then a claim begins.
Perhaps High Tech attracts the media and the University grant funding but fresh ideas are being generated right across the UK and deserve their due recognition.

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http://www.hmrc.gov.uk/statistics/research-tc/rd6.pdf

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As stated, our commercial interest is in finding the markets where awareness of R&D Tax Relief is low so that we can present our credentials to new claimants.

Our conclusions are open to challenge but we feel that regional Chambers of Commerce, the Technology Strategy Board, Nesta, the BIS and Universities working with innovative startups have a lot to gain from exploring the R&D Tax Relief Scheme and Patent Box for those with Intellectual Property.

Whilst Large Companies understand and use the scheme to good effect we can offer a professional expertise to smaller businesses which might otherwise be unaware of their entitlement.

Businesses outside London and outside Manufacturing and Software are actively improving their products and services and overcoming technical challenges and deserve to be made aware that policy makers are keen to support them. Nesta?s showcase in Wales proves that innovation is as alive and kicking in the centre Powys as it is in the centre of London.

Source: http://www.fearlessway.com/?p=4173&utm_source=rss&utm_medium=rss&utm_campaign=questions-about-rd-tax-relief-by-region-and-sector

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