A new plan has been announced today (Wednesday 28 October) which sets out how the government intends to make it easier for small businesses investing in research and development (R&D) to claim tax relief.

R&D tax relief exists to encourage investment in research, development and innovation by UK companies and not just those working with new technologies, which is a common misconception.

The two-year plan, which follows an HMRC consultation, aims to increase take-up of R&D tax relief through raising awareness of the tax relief amongst small businesses and making it easier for them to apply.

The tax relief helps companies reduce the amount of corporation tax they pay on profits by offsetting them against any investment in research and development.

Latest statistics for 2013 to 2014 show more than 15,000 SMEs claimed the relief in 2013, an increase of around 19 per cent from the previous year, but the government wants to go further.

The plan contains a number of measures which include:

  • From November, small companies – with a turnover under £2 million and fewer than 50 employees – will be able to seek advance assurance on R&D tax relief. This will give them greater certainty and enable them to plan their finances effectively.
  • HMRC will explore ways to improve its communication around R&D tax relief, including looking at ways to use data and work with other government agencies to identify companies that have carried out R&D but have not claimed relief.
  • Interactive guidance will be developed with stakeholder involvement

HMRC evaluation shows that each £1 of tax foregone by R&D tax relief stimulates between £1.53 and £2.35 of additional R&D investment.

SME R&D relief works by way of super deduction, allowing companies to reduce profits liable to corporation tax by 230% of their qualifying R&D expenditure.

In 2013/14, businesses received £1.75 billion in R&D tax relief, an increase of almost £750 million since 2009/10. If you’d like to talk through whether your business could benefit from R&D tax relief get in touch today and speak to one of our experts.

Further information about how Bedrock can assist with securing R&D tax relief can be found here.

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