As R&D tax consultants, we often find that accountants may struggle to highlight the benefits of smaller R&D tax relief claims to innovative businesses.
This may stem from a lack of awareness of the impact that even small R&D tax relief claims can have when a business wants to continue pushing the boundaries.
When effectively utilised, small R&D tax relief claims can be the cash injection that small companies need to continue operating.
What are the benefits of small R&D tax relief claims?
Obviously, there are some R&D tax relief claims that will be too small to be considered worth it from a commercial perspective and every accountant and R&D tax consultant will have a different metric for this.
Even innovative businesses would likely not benefit from tiny claims, so we are in no way advocating that every R&D tax relief claim is equally worthwhile.
However, there are small businesses that do R&D work where the expenditure is small enough that it might be overlooked by larger firms but still be impactful for a business.
The merged R&D scheme gives claimants an expenditure credit equal to 20 per cent of qualifying R&D spend.
That credit is taxable as trading income, so the after-tax benefit falls roughly to 15p–16p per £1 of qualifying spend for typical corporation tax rates.
As an example, if a business had £20,000 of qualifying costs, it would produce a £4,000 gross credit and, depending on the client’s profit position and Corporation Tax rate, roughly £3,000 of net benefit for a profitable company.
As you might be able to imagine, having this additional cash can allow businesses to get back into innovation as they can reinvest the funds in the next project.
Ultimately, the R&D tax relief scheme was created with these kinds of businesses in mind – businesses that might struggle to keep innovating if not for a financial boost from HM Revenue and Customs (HMRC).
If the company is loss-making, the R&D tax relief might be enough to keep them as an ongoing concern, preventing the insolvency of a company that is paving the way with innovative work.
What are the downsides of a small R&D tax relief claim?
As mentioned, there are instances where an R&D tax relief claim is simply too small to be worth filing.
However, with R&D tax relief claims that are worth it, there remain some issues that need addressing.
If a business is desperate for money and faces an enquiry, it is possible that the delay could result in some financial hardship if the enquiry cannot be resolved quickly.
That is why it is imperative that even small R&D tax relief claims are well evidenced and that work is done to prepare a defence for an enquiry should one arise.
We work alongside accountants and innovative businesses to defend against enquiries so that R&D tax relief claims are processed as efficiently as possible.
We can help you determine whether an R&D tax relief claim will be worth it for all involved and help to create a claim that is robust enough to be defended from enquiry.
For help in supporting businesses of any size with their R&D tax relief claims, speak to our team today!
