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3 Reasons SMEs Think They CAN’T Apply for R&D Tax Relief (And 3 Reasons Why They CAN)

11th Jun 2021
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Myriad Associates helps businesses maximise tax reliefs.

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What do the terms “Research and Development” or “R&D” mean to you?

Bio-scientists progressing a cure for cancer? Tech entrepreneurs developing new software to transform our lives? Engineers designing spacecraft that can take tourists to the moon?

Well, I’ve got news for you.

From developing a new stitching method for leather to creating a piece of equipment to help beekeepers manage their beehives safely, although HMRC say that "The work that qualifies for R&D relief must be part of a specific project to make an advance in science or technology", R&D projects don’t necessarily need to be grounded in science or technology to count as R&D. 

Despite this and the government-funded R&D tax credit scheme, only 28% of SMEs claimed their R&D entitlement last year.

Why is that? 

Why aren’t more SMEs filing R&D tax credit claims?

Here are three of the biggest reasons SMEs don’t think they can claim the R&D tax relief they’re entitled to, and three reasons why they’re mistaken.

1.My company won’t qualify for R&D tax relief as it isn’t scientific or technical

You don’t need to run a lab, wear a white coat or own a software development company to claim R&D tax relief.

Any company in any industry may be eligible for R&D Tax Credits.” – Myriad Associates

The R&D tax credit incentives aren’t based on the type of company you have, the products you sell, or the industry you’re in. They’re centred around the kind of projects you’re working on and whether or not you’re taking a risk or facing an uncertain outcome with them.

So, if your company is either taking a risk or facing uncertainty when working on either of the following types of project, you may be eligible to claim R&D tax relief:

  • Creating new products, processes or services
  • Changing or modifying existing products or services

2.I can’t claim for R&D tax credits because my R&D project failed

It’s worth remembering that when claiming R&D tax credits, it’s not always about whether you’ve reached your end goal or final destination, it’s about the journey you’ve taken to try and get there.

Despite what you might think, a failed R&D project can be a positive sign. It shows HMRC that what you were trying to achieve was genuinely challenging, risky and uncertain and, therefore, deserves R&D tax relief.

Technical difficulty, experimental work and waste are all signs of scheme eligibility and can make up a major part of any claim.” – Tax Cloud

Just make sure you keep a detailed record of what you are trying to achieve, complete with any mistakes, unforeseen problems and challenges you encounter along the way, so you can submit this with your R&D claim.

3.The R&D tax credit scheme is just for big companies, isn’t it?

Regardless of its size, any company can claim R&D tax relief. The R&D tax relief incentive has two branches: one for large companies (the RDEC branch) and one for small to medium ones (the SME branch).

Providing your company has the following, you can claim for R&D tax relief under the SME branch of the scheme:

  • 500 members of staff or less
  • An annual turnover of less than €100m
  • A balance sheet under €86m

So, those were three of the biggest reasons why SMEs think they can’t apply for R&D tax credits and why they absolutely can.

But to really hammer the point home, let’s look at an example of how a small company, which is not in the scientific or technical industry, and whose R&D project wasn’t successful (first time round) filed a claim for R&D tax relief and won.

How a vegan salami won R&D tax credits

A small food manufacturing company that specialises in the manufacture of vegetarian and vegan products wanted to develop a plant-based, dried, smoked, salami-stye sausage. When they started this project, nothing like it existed in the meat-free market.

So, during the development of the salami-style sausage, they had to overcome technical uncertainties and difficulties surrounding the development of the taste, smell and texture using vegan products only. It was a complicated process that took a lot of time, money and resource.

Although the vegan salami didn’t make it to market first-time round, because the food manufacturers had kept a detailed record of all the activities, attempts and outcomes they had faced throughout the entire project, HMRC could see that they were taking huge risks and that the project had faced significant technical uncertainties.

This meant they were awarded their full R&D tax entitlement.

But some SMEs don’t even get as far as making a claim...

Since the R&D tax scheme launched in 2000, £33.3bn in R&D tax relief has been claimed. But, there are still so many businesses either not claiming or getting their full R&D tax entitlement. This is potentially because they don’t understand the scheme and its criteria.

This is where Myriad Associates comes in…

 Got questions about your R&D tax relief claim?

Myriad Associates has been in the R&D tax relief industry for over a decade. With an expert team of R&D tax specialists, if you need help, guidance or advice about making an R&D claim, they are the people to speak to. With their 100% success rate and strong relationship with HMRC, the team can discuss your R&D project, answer all your questions and make sure you’re doing everything possible to secure as much R&D tax benefit as you’re entitled to.

To find out more visit the website, give us a ring on 0207 118 6045 or drop us a line.