Common Myths Surrounding R&D Tax Credits

Date: 5th August 2014

The government has continually pushed businesses to invest on research and development. In fact, the rate of credit that SMEs can claim for R&D has risen from 11% to 14.5%. But despite the government’s best efforts to support science and innovation in the country, Britain managed to spend only 1.72% of its GDP on research and development. This is far below the government’s target to increase R&D spending by 2.5% of its GDP.  A 2013 news report on Forbes mentioned that only one out of twenty SMEs (in the US) eligible for tax credits have managed to take advantage of it. This could largely be attributed to some common misconceptions associated with R and D tax credits.

  • R&D tax credit is applicable only to companies that invent something new:

It is true that the innovation should be in the field of science and technology. However, to be able to qualify for an R&D tax credit, businesses don’t have to necessarily invent something. It could also include an innovation or a modification in the manufacturing process that makes the end product better, cleaner or cheaper. However the innovation should not just increase knowledge for the company claiming the credit but for the industry in general.

  • Research and development credits can be claimed only if the project is successful:

It is a common misconception that R&D tax credits can be claimed only if the project has been successful. As long as companies can prove to the HMRC that they have used path breaking techniques, they are eligible for credits. But merely assimilating different strategies that are already used in the market and tailoring them to appear as an innovation is however discouraged.

  • These tax credits are beneficial only to large companies:

It is true that only large companies take advantage of these credits. But the government does not restrict the scheme to a certain sector of business. In fact, the small and medium-sized enterprise sector has higher rates of relief. This is done so as to cover them for losses in their early years.

Contact us to know if your company is eligible for R&D tax credit. Call us for a free assessment.

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