The government’s Budget proposal to simplify the administration around research and development (R&D) tax relief has been welcomed by businesses, but some in the industry feel that not enough is being done to capitalise on the success of the reliefs.
According to a leading R&D tax consultancy, where businesses are able to access the tax credits they are proving valuable in helping UK firms grow and become globally competitive. However, despite the success of the reliefs there is still more that can be done to ease the uncertainty and admin burden that surrounds them and specifically target the UK’s smallest businesses.
In his Budget speech Chancellor Philip Hammond praised the success of the reliefs, and a government review of R&D tax credits found that the UK’s regime is “an effective and internationally competitive element” of the government’s support for innovation. Speaking with AccountingWEB Jenny Tragner, director at ForrestBrown and a member of HMRC’s R&D Consultative Committee, also backed the reliefs, stating that they fit well with the government’s ‘Britain’s open for business’ strategy.
“Our experience is that where companies are able to access R&D tax credits they are doing what they intended to do, enabling them to increase their team sizes to take on bigger and more complex projects and compete globally” said Tragner.
Contradictory message for large and small businesses
But there is widespread acknowledgement that the government needs to do more, including from the Chancellor himself, who in his Budget speech committed the government to reviewing the administration of the Research and Development Expenditure Credit (RDEC) to “increase the certainty and simplicity around claims”.
Introduced in 2013, the RDEC is designed to encourage large companies to invest in R&D, and some in the industry feel that the Spring Budget appeared to prioritise the needs of big business who use the scheme over those of SMEs and start-ups, sending a somewhat contradictory message.
“It’s interesting he [Hammond] chose to talk about his ambitions for the UK to be the best place to start and grow a business”, said Tragner. “In the most recent survey we’ve run, businesses of all sizes agreed that start-ups are where we should focus our efforts in terms of making sure we can grow those start-ups through to established SMEs and onwards.
“We think there is scope to do more to raise awareness for smaller businesses, and that fits well with the ambition to the make the UK the best place to start and grow a business.”
Awareness, simplification, certainty
ForrestBrown has called for the government to raise awareness of scheme amongst small businesses and reach “innovative businesses in innovative ways”.
The firm also appealed for the simplification of R&D tax credit rates by merging the two different mechanisms for relief. “The RDEC scheme for larger businesses has increased the visibility of the incentive and attracted an increased volume of claims”, said Tragner. “Why shouldn’t it be the model for both sizes of business?”
Applying the RDEC model to the SME relief scheme would also help to address a common difficulty many SMEs have around predicting their expected cash flow year-on-year, which prevents many from taking advantage of the scheme.
Government statistics on the uptake of its R&D tax credit incentives show that claims made by SMEs rose by 16% in 2014-15, with nearly 19,000 claims processed. However, this compares to a 23% growth rate in 2013-14.
According to ForrestBrown’s Jenny Tragner, the real challenge with R&D tax credits is identifying the innovation that’s happening within the business, then having the resources and know-how to make sure the business in question is optimising what’s available.
“There is information out there on the internet, but there’s a lot of it”, said Tragner. “Being able to talk to other companies in the sector that have claimed, and review their experience and what’s worked for them, talking to a trusted advisor, these things are really important. There is help available, but the real challenge is to stop businesses from writing it off before you’ve had a look at how broad the definition of R&D is for the purposes of the relief.”
What have been your experiences around R&D tax credits? Was it a simple and straightforward process, or are there things the government can do to simplify the reliefs?