The U.K. tax authority Her Majesty’s Revenue and Customs (HMRC) has released the R&D Tax Credits Statistics for 2019. While the results are along the same lines as previous years, this year’s results reveal some surprising information about claims by small and medium sized enterprises (SMEs). There has been a rise in the number of smaller claims by small SMEs, including start-up technology companies.
Research and Development (R&D) reliefs are intended to support companies that work on innovative projects in science and technology.
Mark Smith, Partner – Innovation Incentives at Ayming suggests to Digital Journal that with a larger number of smaller claims, it is unlikely that HMRC is able to scrutinise them in any meaningful way. If HMRC doesn’t have the infrastructure required to properly go over these claims, then delays will likely occur which will have a real effect on business cash flow, something SMEs cannot afford.
According to Mark Smith, there are some important signals to be drawn from the latest figures: “These statistics reveal some positive steps, but there’s still lots of progress to be made. The Government has made clear its mission to make the U.K. an innovation hub but, as it stands, the U.K. is currently way off its R&D spending targets.”
Smith also delves into the trends: “It’s fantastic to see claims continue to rise across key sectors, such as manufacturing, with SMEs accounting for the vast majority, indicating growing awareness. It’s promising but it’s not quite where we need to be.”
By this he further explains: “R&D tax credits have a vital role to play in boosting innovation funding and, if businesses aren’t using them enough, that’s a problem. To hit our R&D spending targets, we need to ensure businesses are fully equipped to make full use of incentives which will allow companies to pump more money into innovation.”
As a way forwards, Smith calls for greater flexibility, adding: “The incentives will need to be even more accessible if the U.K, is to hit its targets.”
However, in doing so changes are required within the tax office: “And with claims continuing to rise, does HMRC have the infrastructure to review so many claims? Managing this steep incline in claims activity is proving tricky already with some problems emerging around claims processes. Recently it’s been revealed that it has taken businesses seven months to receive claims and that smaller businesses have been struggling with application processes.”
Smith acknowledges that the current structure and process is impacting upon businesses: “Delays to claims will have a real effect on business cash flow. Perhaps a manageable problem for larger businesses but for SMEs, it’s a game changer. It’s absolutely crucial HRMC has sufficient infrastructure and resources required to operate smoothly, particularly considering claims are set to increase. If not, it’s going to stifle innovation.”
