R&D tax credits fail to reach small tech companies

The government's R&D tax credits are failing to reach down to small businesses, according to internet service provider UKFast.

A recent study of UKFast's technology client base found that 72% were not taking advantage of the credits, and 45% were not aware they existed.

UKFast managing director Lawrence Jones commented: "Larger more established companies are enjoying the incentives. But the vast majority of small businesses that try for relief give up because they don't have the resources to follow a claim through."

The HMRC R&D tax credit website explains that the scheme allows companies to deduct up to 150% of qualifying expenditure on R&D activities from their taxable profits. Smaller companies can, in certain circumstances, surrender this tax relief to claim payable tax credits in cash from HMRC.

In spite of providing comprehensive information on the web, an HMRC official told UKFast's researchers that it can be difficult to translate legislation into easy to read manuals. Often it takes a skilled accountant to understand and comply with the incentives.

Jones commented that the government should do more to encourage those who need the breaks. "It's ironic that the government seeks to encourage innovation and yet the very people with the drive to push technological boundaries are unaware of such tax breaks or feel discouraged to apply for them," he said.

In 2004, the government said the scheme had channelled more than £600m into private sector R&D. In spite of a widening of the definition in the 2004 Budget, KPMG found that many SMEs were unaware of the scheme and the Federation of Small Businesses criticised its "overly bureaucratic nature".

Further R&D tax credits information