Business Finance: More firms should be claiming R&D tax relief, says Peter Harrup

Peter Harrup of BDO LLP.

Peter Harrup of BDO LLP. - Credit: Archant

With its enhanced tax relief for research and development (R&D) costs and reduced rates of tax on profits derived from the exploitation of patents, the UK has established itself as one of the world’s leading jurisdictions in which to locate and develop intellectual property.

So much so that other countries have challenged our R&D tax regime on the grounds that it’s anti-competitive ? but that is no reason to be put off taking advantage of the generous tax reliefs that are on offer.

According to the most recent statistics, around 12,500 claims for R&D tax relief are made each year, representing £1.2billion of tax support. However, there are approximately 3million active companies registered at Companies House, which means that only 0.4% of all active registered companies are making claims for enhanced tax relief for R&D costs.

Approximately 1,300 (around 10%) of the claims for enhanced tax relief are made by companies in the East of England, resulting in around £150m of tax support. Intuitively, these figures also seem very low.

The majority of claims are made by companies operating in the business services and manufacturing sectors. Yet successful claims have also been made by companies that might not necessarily be associated with R&D activity, such as those in the wholesale and retail trade, hotels and restaurants, financial, transport, storage and communication sectors.

Clearly, many more companies, who are not currently claiming tax relief, may well be entitled to do so ? are you missing out?

The key is to ask how your company differentiates itself from its competition. What technical improvements has your company made to gain competitive advantage? What is its intellectual property and unique selling point? This might, for example, arise from features of a product, internal processes that enhance efficiencies, or bespoke computer software or systems. Whatever technological edge the company has used, or even researched, to try to set itself apart from the competition, this could easily have involved R&D activity.

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Budget 2014 is unlikely to introduce any significant changes to the UK’s generous tax treatment of intellectual property, and I would encourage all business to consider very carefully whether they are entitled to claim additional tax relief for R&D costs. The East of England can certainly do much better than a mere 1,300 claims!

: : Peter Harrup is a partner at BDO LLD in Ipswich