IN June 2011, HMRC issued the latest in a series of consultation documents seeking the views of business as they continue to strive to optimise the effectiveness of Research & Development (R&D) tax reliefs in supporting innovation in the UK for both large companies and SMEs.

These reliefs therefore continue to receive significant government support and the level of consultation illustrates a desire to ensure that the reliefs are focused and accessible.

But could even more be done with these reliefs to encourage innovation?

Missed opportunities

Many companies are missing out on significant tax savings because they are failing to claim their full entitlement to these valuable reliefs.

Companies in sectors as diverse as manufacturing, software development, technology, pharmaceutical and engineering may be undertaking qualifying R&D projects. These projects range from developing new products to refining industrial processes or extending the uses or capabilities of existing products.

The Government’s aim in promoting these reliefs is to stimulate the private sector to develop innovative high value-added processes, products and services and ensure that UK industry remains at the forefront of world wide technological development.

Could more be done?

Our experience is that some companies remain reluctant to claim due to fear of attention from HMRC and that many companies are unaware of the very existence of the reliefs.

HMRC could therefore do more to raise awareness of the reliefs and further encourage companies to claim.

Companies also struggle with the complexity of the reliefs and whilst simplification is sought through the consultation process, it is felt that much more can be done to remove unnecessary detail.

Finally, the amount of tax actually saved as a result of a claim can vary depending on a company’s profitability.

This can lead to unfair results, especially for loss making early stage companies who may receive a lower rate of relief than more profitable established companies; so standardisation of tax savings would also be welcomed.

It is estimated that millions of pounds of tax relief is not being claimed so ensure that it is not your company that is missing out.

It is essential that companies seek the assistance of a R&D tax specialist to review their activities to identify any qualifying R&D projects.

For further information please contact Tony Tomlin, Tax Director on 07800 617021