Finally, loss-making SMEs have something to smile about. Investing in cutting edge science, technology and engineering can be a thankless task, at least until you have established yourself and start turning a profit. So it’s good to know that, as of 2014’s Budget speech, loss-making SMEs have a new champion.
Reversing the downward trend of recent years, our ‘loss leader’ Chancellor George Osborne announced an increase in the rate of surrender of R&D losses for a tax credit, for loss-making SMEs from 11% to 14.5% for expenditure incurred on or after 1 April 2014.
What does that mean for you if you’re a loss-making SME? Well in a nutshell more money! If you’re numerically minded, follow the example below to discover how loss-making SMEs could be making claims up to one third larger on a like–for–like basis. If not, you might want to skip the next paragraph and go straight to what you could do with the dosh.
Okay, so imagine you’re an SME with losses of £100,000 and £100,000 of eligible R&D spend, according to HMRC’s definition of qualifying R&D activity. Under the UK Government’s R&D tax relief scheme, SMEs can deduct up to 225% of qualifying expenditure when calculating their profit/loss position for tax purposes, supercharging the R&D expenditure to £225,000.
Now comes the interesting bit… if the company chose to surrender its R&D related losses for a payable tax credit from HMRC, as it’s perfectly entitled to do under the scheme, it would receive 11% of £225,000 – or £24,750 – under the current, pre–2014 Budget rate. Post–2014 Budget, the company will receive 14.5% of its adjusted losses (if the expenditure incurred on or after 1st April 2014) – or £32,625 – almost one third more!
Now comes the interesting bit… if the company chose to surrender its R&D related losses for a payable tax credit from HMRC, as it’s perfectly entitled to do under the scheme, it would receive 11% of £225,000 – or £24,750 – under the current, pre–2014 Budget rate. Post–2014 Budget, the company will receive 14.5% of its adjusted losses (if the expenditure incurred on or after 1st April 2014) – or £32,625 – almost one third more!
This extra money can be used for all kinds of things – from reinvesting in further development to funding expansion plans, even just easing the cash flow.
Complicated though the scheme’s legislation undoubtedly is, Brian Williamson of Jumpstart, the UK’s leading technical R&D tax relief specialist, says: “I would urge all loss-making SMEs – whether they think they qualify for the scheme or not – to look into this without delay. It doesn’t cost you a penny to get an expert opinion, but could be worth thousands of pounds.”
With the UK Government providing additional incentives for small and start-up businesses to invest in R&D and Jumpstart doing everything in its power to help companies claim the R&D tax relief and credit they’re entitled to, the present is looking pretty bright for loss-making SMEs in particular and UK innovation generally, never mind the future.
Author - Laetitia Guichard
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