Joel Muckett 19 Jan 2018 01:18pm

SMEs owed £84bn in R&D tax relief

The Treasury owes Britain’s small businesses more than £84bn in backdated research and development (R&D) tax relief

At present, around 3.5 million small businesses are actively trading in the UK, more than half (57%) eligible for tax credits on R&D, research from tax relief specialist Catax revealed.

Only around 1% of small businesses have claimed the relief, meaning approximately 1.96 million SMEs are owed money.

Catax estimated that chancellor Philip Hammond was sitting on an “SME war chest” worth £84.2bn – almost twice the annual budget of the Ministry of Defence, and enough to run the NHS for eight months.

It suggested that the lack of small businesses claiming R&D tax relief could be attributed to the tax break being poorly advertised.

“The sum owed to SMEs is astounding when you think about what they could do with that money in the face of significant headwinds,” said Catax chief executive Mark Tighe.

“It’s enough to transform the SME landscape because of the growth prospects of these companies – if only they knew they could claim.”

Tighe urged the government to do more in promoting and explaining what qualifies as R&D.

“Most don’t realise it’s not just a new jet engine, but a new beer, a piece of software, an engineering process or even a new innovative dish at a restaurant.”

R&D tax credits can be used to reduce the corporation tax bill of a business, or it can be claimed as a cash sum reimbursement from HM Revenue and Customs. According to Catax, the average claim for R&D tax relief amounts to £43,000.

Last week, research from accountancy firm Moore Stephens found that small businesses in the UK were paying a higher effective rate of corporation tax than big businesses.