In his spring budget Philip Hammond announced that the government will shortly be looking at ways to implement changes to the R&D Tax Credit scheme. The aim is to reduce red tape to encourage SMEs to apply.

To further support investment, the government said it will make administrative changes to the Research and Development Expenditure Credit to increase the certainty and simplicity around claims. It also said it will act to improve awareness of R&D tax credits among SMEs.

The UK invests in total 1.7 per cent of GDP in private and public R&D funding. This is below the OECD average of 2.4 per cent and far behind the leading backers of innovation, research reveals.

The government has said it will provide a further £4.7 billion of funding by 2020-21 – an increase of around 20 per cent to total government R&D spending. It is also set to explore how additional funding and the tax environment for R&D can be used to drive up the level of private investment in science, research and innovation across the economy.

Government figures reveal that 18,630 of the total 22,445 R&D Tax Credit claims in 2014-15 came from SMEs, up from 16,005 in 2013-14. The cost of support for the SME scheme rose by £325 million to just over £1 billion.

Recent independent research has revealed that 73 per cent of the smallest companies have never made use of government funding. The study found a low take-up of government funding from companies employing 1-50 staff which might suggest a chronic lack of awareness in that sector. Only 13 per cent of larger companies have not accessed any form of government funding.

This is worrying because 41 per cent of smaller businesses say their ability to access funding has been a barrier to growth.

Incentives for innovation are currently benefiting bigger businesses with the resources and know-how to be able to identify and access them. Smaller companies are being left behind. The government’s efforts announced in the spring budget should be directed at those who need it most: smaller businesses.

The reason why most companies do not apply is that they do not believe they ‘do R&D’.

Many see research and development as something done by men in white coats in a laboratory rather than the development of a product.

They also often look at the scheme on the HMRC website and are intimidated by the terms used. Often their external accountants advise them not to claim.

At one time or another 80 per cent of clients looked at this scheme and thought they did not have a claim.

Do you qualify?

• The company must be a UK limited company.
• The company must have paid either Corporation Tax or National Insurance and PAYE.
• For any project to be valid the company must have taken a financial risk.
• Projects should be aimed at improving efficiency or environmental performance through and advance in science or technology.

Typically, many companies are seeking to advance the capability of the science and technology in their environment to be more successful in some way; and if there’s uncertainty involved then it’s not just routine development and therefore qualifies for R&D Tax Credits.

Projects that have failed can also be included, as can the work of sub-contractors.

What type of companies would meet the criteria?

• Software companies.
• Technology companies.
• Broad based manufacturing.
• Anyone who is ‘innovative’ and produces a product of some kind.

Pegasus Funding Resources offers an appraisal service, without cost or obligation, for any company. Let us improve your cash flow by helping you to raise funds through this government scheme.