Just 3% of HMRC R&D tax credit claims come from Scottish firms

Scottish firms that could be eligible to claim tax relief through the HMRC Tax Incentive are missing out on thousands of pounds that could be injected back into developing their businesses, according to an analysis conducted by Research and Development Specialists.

Just 3% of HMRC R&D tax credit claims come from Scottish firms

The firm has analysed Gov.uk data and found that only 3% of all claims made through the tax relief scheme came from Scottish companies, with 97% coming from elsewhere in the UK.

Mark Joyner, managing director of RDS, said: “The HMRC Tax Incentive scheme was set up by the UK Government to encourage innovation and stimulate the economy by supporting firms to bring new products and services to market.

“If a company has undertaken any research and development project in this or the previous financial year, it will be eligible to claim, even if the project was unsuccessful or if product-based, the product has not been brought to market.

“The issue seems to be that not many business owners know about the scheme, and those that do, think they are not eligible, or simply don’t have the time to look into it. This is especially true in Scotland where very few companies have made claims, which leads me to believe that the awareness is just not there. We’re hoping to change all that.

“The brilliant thing about the schemes is that, where the application process can be complex, at RDS we are able to find out if firms would qualify in as little as a fifteen-minute conversation. The average claim for an SME is £53,000, so for me, that surely has to be worth looking into.”

He added: “Most of our clients are surprised by the amount they receive through a successful claim. The majority go on to invest it back into the business, either for more research and development (making them eligible for the next year) or there are a good proportion that are using it to offset rising business costs or pay back loans taken during the pandemic.

“If you’re already doing research and development, why wouldn’t you claim back what is rightly owed to you?”

Companies undertaking any type of research and development can claim tax credits through the HMRC Tax Incentive, which aims to reward businesses for innovation. Any UK business can claim, although which scheme a business applies to will depend upon the size of the company.

Research and Development is anything that looks for an advance in science and technology, any new product not already readily available, bespoke-built systems, new materials, new processes, and new ways of doing things; basically, anything that has involved a documented phase of investigation and can be described as innovative or advancing existing products or services.

For profitable businesses, the benefit is applied as a reduction in corporation tax. If a claim is historical, the monies will be claimed back as a repayment of overpaid corporation tax.

For companies operating at a loss, the R&D claim will increase the loss arising. This loss can then be set against prior and future profits of the company, or it can be turned into a cash repayment by using a process HMRC calls ‘surrender’, whereby the business takes a slightly lower benefit percentage for the ‘cash now’.

Mark Joyner concluded: “We’d love to see more Scottish companies reaping the benefits that those in the rest of the UK have been able to. If it’s a simple lack of awareness, then we hope to change that, and we’ll be doing a real push to help Scottish businesses uncover the advantages of a HMRC claim.”

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