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More than half of SMEs are missing out on R&D tax benefits

More than half of SMEs are missing out on R&D tax benefits


Corporate tax "scandals" have dominated the headlines in 2016 and placed businesses under greater scrutiny from specialist Government taskforces.

Last year, HMRC raised an additional £470m in tax from small and medium sized businesses (SMEs) alone and has unveiled plans to triple the fine given to SMEs for late payments, increasing the maximum penalty of outstanding tax bills from 5% to 15%.

Despite the intensifying clampdown on compliance, there is a legitimate tax benefit that more than half of UK SMEs are failing to take advantage of which could help to boost their cash flow and fund future investment projects.

The unknown gem of tax credits?

Launched by the Government in 2000, the little known Research & Development (R&D) Tax Relief Scheme was introduced to encourage innovation and global competitiveness.

It enables companies to reduce their tax bill or claim payable cash credits as a proportion of their qualifying R&D expenditure. Under the present criteria, loss-making firms are eligible for a repayment of up to 33% and businesses which are in-profit can save tax at 46% of qualifying expenses.

Figures can be deceiving though. According to statistics released by HMRC, SMEs claimed £970 million in R&D tax credits in 2014-15, up from £780 million in the previous year.

However, the number of SMEs who claimed R&D credits in this same period rose by only 7% and it is estimated that £1 billion in tax credits is currently going unclaimed every year as confusion remains over which businesses are entitled to claim.

R&D tax credits qualifying criteria - it's the thought that counts

Some businesses are aware that R&D tax breaks exist but many wrongly perceive they are not entitled to claim even if they have qualifying expenditure. Registered businesses investing to enhance products and services through technological advancements, where the outcome of their project is uncertain, have a good chance of gaining R&D tax credits.

Businesses are not restricted by their industry sector, nor must they employ 'specialist scientists' either.

Even if your project is unsuccessful, businesses can still receive tax relief if they were trying to strengthen their competitive edge by harnessing innovative or pioneering technologies. R&D tax benefits are not reserved for just 'small businesses'. Organisations that pay Corporation Tax, employ fewer than 500 staff and which have a turnover under €100 million and a balance sheet not exceeding €86 million may also apply for this relief.

It doesn't have to be a taxing time of year

As the 31 January payment deadline looms, tax season is a stressful period for SMEs which is likely to further be exacerbated by the economic uncertainty surrounding Brexit. Businesses which are not entitled to R&D relief should not despair - there are many other ways that they can reduce their tax bill and preserve vital cash reserves.

The Chancellor's Autumn Statement recently announced that the personal allowance - the amount you can earn tax-free each year - will increase from £11,000 to £11,500 from April 2017 and rise to £12,500 by 2020. Claiming for various company expenditure and leveraging the Annual Investment Allowance, in which businesses can write off the costs of purchasing certain assets against profits in the year of purchase, are also effective ways to save tax.

Furthermore, an increasing number of SMEs are turning to tax funding from alternative finance providers as a simple and effective means to pay their tax bills without putting a strain on their cash flow.

Wesleyan Bank offers an extensive range of solutions to enable businesses to spread the cost of their tax bills over six or 12 months, limiting the impact on their day-to-day finances so they can utilise working capital where they really need it.

To get an instant quote to spread the cost of your upcoming tax bill, visit our application portal.

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