More than three quarters of small and medium-sized engineering firms have not heard of R&D tax relief, according to a new survey by tax relief experts Catax. The poll, which surveyed 500 senior managers and owners, also found 36% thought relief is only available for high-tech science or drug companies.
The government credits are available for any business that has developed a new product or process in the last three years, while seeking to achieve “an advance in overall knowledge or capability in a field of science or technology, through resolution of scientific or technological uncertainty”.
Tax credits provided £2.45 billion of relief to almost 21,000 companies in 2014-15, HMRC said, supporting about £21.8 billion of expenditure. There was also an increase of about 2,500 more small companies claiming relief.
However, low awareness of R&D relief in engineering is restricting the “sheer depth” of British innovation, said Catax CEO Mark Tighe.
“I think the real issue is the lack of understanding over what can qualify for this relief,” said Tighe to Professional Engineering. “There’s a myth that only firms employing ‘people in white coats’ are eligible for R&D relief, but this simply isn’t true. If an engineering company develops a new process, technique or product, then even if the development process ends in failure, it could qualify.”
More than half of respondents fit that basic requirement, Catax said, although HMRC highlighted the additional requirement of “advancing knowledge or capability”. Successful claims from Catax’s engineering clients in 2017 include rapid-deployment hydraulic bollards for use during terror attacks and a steel support framework for railway tunnels.
“By knowing that this relief is there and can be used, firms will often be comfortable taking more creative risks,” said Tighe. “Innovation is good for companies and it’s good for the wider economy, which is what the government is ultimately interested in.”
A recent review of the R&D tax regime found the UK’s system is “an effective and internationally competitive element of the government’s support for innovation,” an HMRC spokeswoman told PE. However, she said the system is kept under constant review.
“At spring budget 2017 the chancellor announced that Government would take action to improve awareness of tax credits among SMEs,” she added. “HMRC is building on improvements already made in its guidance to ensure SMEs are aware of the eligibility criteria and benefits of tax credits at the earliest possible stage.”
Despite the claim, she did not initially give any practical ways that the Government is improving awareness of R&D relief.