It is widely accepted that Research and Development (R&D) tax credits are among the most generous tax reliefs available to UK companies. Their aim is to encourage UK companies to invest in Research and Development by rewarding qualifying investment, and R&D tax credit regime has been structured to provide greater rewards to small or medium-sized enterprise (SME) compared to large companies.
For SMEs, the R&D relief is availed of to reduce their corporation tax liability and, if they do not have a tax liability, it can be used to generate a cash payment.
So what do the latest HMRC statistics tell us about NI R&D claims? Despite the fact that R&D tax credits were first introduced to SMEs in 2000 and were extended to include large companies in 2002, it would seem from the most recent HMRC statistics that not all eligible NI companies are aware they are entitled to this very generous relief.
The latest statistics show that NI companies only make up 3% of all R&D claims submitted in 2016/17, and received by only 1.6% of the total R&D benefit awarded to UK companies. Although the statistics also show that NI companies enjoyed tax breaks and cash benefits in the 2016/17 tax year of £55 million, that is a significant reduction from the prior year when they received £10m more.
While the reduction in NI R&D benefits can be explained in part by a slight reduction in claims from 2015/16, it is also the case that the average claim per NI Company is down 11%.
So are NI companies missing out? In Northern Ireland, there are many examples of companies that are making their first R&D claims despite undertaking qualifying activities for years. It is very likely there is still more NI companies which undertake qualifying activities but have still not claimed. It is also the case that some companies are not claiming all their qualifying costs, this could be due to the complexity of the R&D legislation.
The potential benefit of R&D tax credit claims is too valuable to be missed or for all qualifying costs not to be included. The cash flow benefit to companies alone can have a significant impact.
The good news is that it is not too late for 2016/17 R&D claims. R&D claims can still be submitted for 12 months after the tax submission deadline – for example, a 31 December 2016 accounting year end, an R&D claim can be made (or amended) before the tax amendment window shuts on 31 December 2018 (12 months after the 31 December 2017 tax filing deadline).
Company boards, and in particular SME boards, need to be aware of R&D tax credits, and their potential benefit. If in doubt specialist R&D tax assistance should be sought to ensure your company unlocks the full value of the reliefs to which you are entitled.