Nearly half of eligible firms failing to claim valuable R&D tax relief, study shows

Date published: 19 December 2018

More than 8 in 10 companies in Greater Manchester could be eligible for Research and Development (R&D) tax relief on new products and services but less than half of them have ever claimed, Manchester-based tax relief specialists Catax revealed.

Businesses are missing out on millions of pounds even though 84% of them have developed new products or business process in the last two years, spending an average of £209,758 on these innovations, research shows.

This means these companies are in line for valuable R&D tax relief that the government provides to encourage innovation.

But despite three quarters (76%) of firms being aware of R&D tax relief, only 48% report ever claiming it, the Catax study shows. This suggests just 57% of eligible firms are claiming the R&D tax credit they deserve.

This is either because they don’t think they qualify, or they incorrectly believe that it is expensive and time consuming and ‘would not know where to start’.

A quarter of businesses do not realise they can claim R&D tax relief if they develop a new product or service, according to the Censuswide survey.

Executives believed the average value of an R&D tax relief claim in the first year to be just £19,118 when the true figure is more than double that, at £49,000 for firms in all sectors nationwide. R&D doesn’t even have to have been successful to qualify and claims can be backdated at least two years.

Across the UK, the number of firms that have ever claimed is 37%, which puts Manchester ahead of the national average, despite the fact businesses are missing out on a huge number of claims.

Mark Tighe, CEO of Catax, said: “The business sector is missing out on tens of millions of pounds in R&D tax relief each year – money that could be reinvested into businesses to encourage further innovation and growth.

“Many companies still think that R&D is all about science laboratories and test tubes and simply do not relate it to their own work. This needs to change.

“Companies invest hundreds of thousands each year on developing new products and services which would make them eligible for tax relief and yet less than half are actually claiming.

“Business executives looking to improve margins and efficiencies must take a proper look at their R&D tax relief entitlements. Most good R&D tax relief specialists will work on a commission basis so concerns over costs should be dismissed.

“New products and services do not even have to have been successful to qualify for R&D tax relief because it is all about encouraging innovation.

“If all the companies started claiming what they are entitled to it could really supercharge Greater Manchester’s economy.”

R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum reimbursement from the HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.

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