More companies take up R&D tax credits

The R&D tax credit regime has operated in the UK since 2000 and recent figures show that the volume and value of claims continue to rocket. R&D tax credits can be an alternative, and often vital, source of funding: don’t be one of the companies missing out. We have handled hundreds of claims for our clients for expenditure well in excess of £150m.

Each year HMRC publish statistics on the take-up of R&D tax credits. The latest update was published in August 2013 for the 2011-12 year. The figures make interesting reading:

• R&D tax credits are becoming increasingly popular, reaching circa £1.2 billion per annum

• Nearly 10,500 claims were made by SMEs (small and medium enterprises), up 20% year-on-year

• 83% of the total claims are made by SMEs, representing 36% by value. Larger companies with their bigger R&D budgets get the larger slice

• The average claim for an SME was £41,300, whilst for a large company the average claim was £363,200

• Companies in London and the South East dominate when it comes to making claims for R&D relief, accounting for 35% of the total claims made.

So what about the future?

It is widely believed that the take-up will continue to grow: It is still acknowledged that companies are missing out. The government estimates that R&D tax credits are claimed on only two-thirds of R&D expenditure. Companies fail to appreciate they qualify or are badly advised.

R&D credits continue to improve: For SMEs, for example, since the 2011-12 year referred to above, the rate of enhanced R&D relief for SMEs has increased from 100% to 125%, and the PAYE cap on the amount of refundable credits has been abolished.

Above the Line Tax Credit?

In the past some loss-making companies have not been able to get a cash refund, and the absence of an immediate benefit may have put them off claiming. Examples include companies which:

• Are large or part of a large group (EU definition; e.g. >500 employees)

• Have significant owners who are not individuals or SMEs (which can include some private equity structures)

• Have projects which are subsidised e.g. by grants

• Are carrying out work sub-contracted to them by other companies

Recent improvements to R&D tax credits have introduced the concept of an Above the Line (ATL) credit. This credit, available for expenditure incurred from April 2013, is fully payable for companies with no corporation tax liability. The ATL credit is paid at a rate of up to 10% of qualifying expenditure.