Small and medium-sized enterprises (SMEs) are the lifeblood of the UK’s economy so don’t let the name fool you. According to the Department of Business, Energy and Industrial Strategy (BEIS), 99.9% of the UK’s business population are SMEs, which means large businesses only make up 0.01% of the total business population. SMEs are not just creating more jobs but also drive growth and are seedbeds for innovation. Despite this, the average profit margin for an SME is £8,000.
Considering the current economic climate due to the outbreak of Coronavirus and the above statistics, it reveals that most SMEs are likely currently experiencing incredible levels of financial strain. Therefore, we believe that ensuring that your company benefits from schemes like the R&D tax relief is especially paramount to help alleviate some of the financial burden your company may be experiencing.
What is R&D tax relief? Research and Development (R&D) tax credit is a valuable government initiative that is designed to encourage and reward companies investing in R&D projects that will help further knowledge in a given field. It does not always have to be something completely new, you can be improving the previous version of your product, as long as there is an aim of achieving a scientific or technical advancement and uncertainty, you may qualify, regardless of whether the project was ultimately a success. There are two types of tax credit schemes that a company can claim, either the SME R&D relief or RDEC, you can learn more about the two schemes here.
Why is it important for SMEs to explore whether they can claim R&D tax credit? A successful R&D claim is a way of alleviating critical cashflow problems that many SMEs are currently experiencing due to the pandemic. If you are considering alternative revenue streams and funding to keep your business afloat, help with workers’ salaries and other expenses, an R&D claim can be the answer.
A successful R&D tax relief claim can result in a repayment of paid corporation tax, a cash credit from HMRC or a reduction in a future corporation tax bill. The scheme itself is tied to financial periods of the company and in most instances, you can look back up to two years. With this scheme, companies can claim up to 33p per £1 spent on eligible R&D activities across a range of qualifying expenditure types.
The HMRC’s guidance for processing SME claims is set at 28 days, with an additional two weeks on top for any payment processing where a cash credit or refund is due. In other cases, where an imminent corporate tax payment is due for the relevant claiming period the benefit of submitting an R&D claim is immediate.
Although HMRC is currently processing a huge amount of other government emergency financial measures, they have made a statement that they aim to clear up to 95% of SME R&D tax credit claims within the 28 day timeframe, as they recognise that processing these claims as quickly as possible is another way of helping SMEs alleviate some of their current financial strains.
The CBILS is considered state aid, therefore if your company received CBILS, you may need to claim under the less generous Research and Development Expenditure Credit (RDEC) scheme. The deciding factor will be whether CBILS was used specifically to pay for the company’s R&D project or if it was intended to be used more generally to support the business. If the payment wasn’t used for R&D purposes, we suspect then the SME R&D tax relief remains viable.
To receive R&D tax relief, it’s important to certify that your business is a going concern, as that is a statutory requirement. HMRC will monitor to ensure that a company claiming R&D tax credit is able to meet the going concern requirement, therefore for businesses whose position is unclear as a result of the pandemic, it is best to have an R&D specialist look over your accounts first before making a claim.
Overall, we are seeing more and more SMEs bringing forward their R&D claims, or looking for qualifying projects within their business. Currently, we are happy to advise and help SME get access to finances in a number of ways. We can help companies apply for the traditional Coronavirus support, such as Coronavirus Job Retention Scheme and CBILS, as well as R&D tax relief claim. Get in touch today to see how we can help you get access to finances and boost your cash flow during this pandemic.
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In an effort to address abuse and non-compliance of the R&D tax relief scheme, HMRC has introduced new claim notification and additional information forms. These forms apply to all claim types, including SME, RDEC and hybrid. Both forms went live for accounting periods starting on or after 1 April 2023, but the additional information form won’t be formally accepted until 1 August 2023 – forms submitted before then can be done on a voluntary basis. There are a number of conditions to consider.
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To help tackle abuse and non-compliance of the R&D tax relief scheme, HMRC has added a few more steps to the claim process: claim notification and additional information forms. These concern all claim types: SME, RDEC and hybrid.Both forms went live for accounting periods starting on or after 1 April 2023, but the additional information form won’t be formally accepted until 1 August 2023 – forms submitted before then can be done on a voluntary basis. There are a number of conditions to consider before each form is submitted.
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To refocus R&D investment and innovation domestically, for the purposes of R&D tax relief the government is changing what qualifies for overseas expenditure both pertaining to you and any business that you may subcontract your work starting April 2024. If you are a business looking to claim R&D relief, or are helping a business which is claiming, we suggest you familiarise yourself with the new guidelines and if you have questions, please reach out to us.
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In the Autumn Statement, the government announced R&D tax relief rate changes for both SME and RDEC schemes. Some of these rates were modified and updated in the Spring Budget 2023. Below we are discussing the most up-to-date (as of March 2023) changes that are scheduled to come into effect from 1 April 2023 and will also affect expenditures incurred on or after the same date.
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