Do small or large companies benefit more from R&D tax relief claims?

Given that R&D tax reliefs directly relate to the amount of qualifying expenditure a valid R&D project amasses, it may be tempting to assume that they are designed with larger companies in mind.

As R&D tax consultants, we frequently get asked whether it is more beneficial for small or large companies to utilise R&D tax relief claims.

While it is certainly true that larger companies will likely receive larger amounts of R&D tax relief, small companies may still benefit from the system.

The implementation of R&D tax relief claims and the impact it has on businesses is nuanced and should be understood by innovative businesses and the accountants who are seeking to help their clients.

Do big businesses benefit more from R&D tax relief claims?

The old R&D tax relief scheme did have a wider distinction between small and large companies, as they were subject to different rates.

The equalising of this structure through a standardised rate does mean that large companies now benefit more than they did, as they no longer have to see smaller entities receive more generous rates.

There are certain costs that may be incurred more by larger companies.

Staffing costs may pose a challenge to larger businesses, especially when entire teams are dedicated to work that would qualify as R&D.

Fortunately, some portion of these expenses, all of those incurred through the R&D work, can be included in an R&D tax relief claim.

Similarly, some administrative work to support R&D and the cost of security can be included, which may make R&D tax relief claims beneficial for larger companies that have more expensive equipment that needs protecting.

Do small businesses miss out when claiming R&D tax reliefs?

The extent to which small businesses benefit from R&D tax relief claims varies depending on how small they are.

There is a point where the time and effort to compile an R&D tax relief claim would outweigh any benefit if the company had very little qualifying expenditure.

However, accountants should be mindful of not dissuading small businesses until they have fully determined whether the cost is worth it.

For many small businesses, increasing operational costs are placing constraints on their finances and the boost that can be gained through claiming R&D tax reliefs is beneficial.

This is due to R&D tax reliefs not requiring the project to yield commercial success and being directly based on the cost of the project itself.

The logic is that small businesses that may otherwise not have the financial security to take risks are empowered to do so, knowing that at least some of the costs will manifest in other ways.

This is further aided by the fact that failed or abandoned projects can still qualify for R&D tax relief claims, provided work did commence on them during the accounting period.

As such, if a small business gets beaten to an innovation by a larger, better-resourced business, they will not fully miss out.

Even in that instance, work might be able to continue on the project if the mechanisms behind the advance are not made public knowledge.

Ultimately, an R&D tax consultant can help businesses, both small and large, get the most out of R&D tax relief claims.

We can help accounts to work with clients to better understand the likelihood of an R&D tax relief claim being worthwhile by reviewing the project and the qualifying expenditure.

The real answer to what type of business benefits most from R&D tax relief claims is that it is the business who understands how they work and includes the full spectrum of qualifying expenses for a valid R&D project.

We can help this become true for any innovative business and the accountants looking to help their clients.

Speak to our team today to make the most out of R&D tax relief claims.

Adam Bointon