Today HMRC has published its plan for small business R&D tax relief, outlining what they are going to do over the next couple of years to help increase awareness of R&D tax reliefs and to make them easier to apply for.
This is good news for innovative SMEs. For manufacturers, R&D tax reliefs are a crucial support mechanism for innovation. They aid cashflow and enable manufacturers to do more innovation, more quickly, than they otherwise could. Our Innovation Monitor 2015/16 showed that 62% of EEF members use R&D tax relief and 91% are aware of the scheme.
Although there are high levels of awareness, HMRC statistics show that manufacturers are only responsible for 36% of claims (by value), despite accounting for 69% of business R&D expenditure, suggesting there is considerable scope for manufacturers to claim more – and the tax reliefs could be doing more to support R&D expenditure in the sector.
Positively, the plan has several facets aimed at improving awareness, design, understanding and administration of the scheme. Key areas to note are:
- A system of Advanced Assurances focused on first-time claimant small companies (with turnover under £2mn and fewer than 50 employees): this is positive because many small companies find R&D tax reliefs complicated and time-consuming to access. However, companies also tell us that they can ‘get used’ to the process. Therefore advanced assurances that help provide companies with greater certainty that their first claims will be allowed could play an important role in familiarising them with the support system
- HMRC will explore ways to communicate with business around R&D tax reliefs: this will start with more direct communication through twitter and email but longer term HMRC will look to use its own data and work with partner agencies to identify companies that might be eligible, but are not currently claiming support.
Providing information about best practice reporting, such as templates and guidance products to help SMEs record their qualifying activity/expenditure: this is something that EEF member said that would be helpful to help them better understand what they could, and could not claim for.
All in all, the plan lays out a number of practical measures which should make these important tax reliefs easier for innovative small companies to claim.
R&D tax relief is one part of an ecosystem of support for manufacturers, next week we will be publishing a report laying out how manufacturers view the system more widely.