Category: Blogs

The Government has stated its changes to the Research and Development (R&D) tax credits system for small and medium-sized enterprises (SMEs), which aims to decrease the number of claims for projects that the system was not initially intended to cover.

The SME R&D tax credits allow loss-making businesses to claim a tax credit worth up to 14.5 per cent of the R&D component of their surrendered losses, plus obtain an immediate cash flow benefit.

Declared within the Government’s current set of tax policy announcements, these changes will apply to accounting periods which commence on or after 1 April 2021 and are designed to exempt businesses with low National Insurance Contributions (NICs) and PAYE who are carrying out genuine R&D work.

However, with these new rules in place, it limits the amount of payable R&D tax credits an SME can claim.

Additionally, after the Treasury’s consultations, the Government has introduced a cap on any claims for payable credits from 1 April 2021, and there will be a threshold of £20,000 under which the cap will not apply.

This cap is to be the threshold amount plus 300 per cent of the businesses’ total NICs and PAYE liabilities for the period.

Businesses can be exempt from this cap if they meet the following criteria:

• The business does not spend more than 15 per cent of its qualifying R&D expenditure on subcontracting R&D to or the provision of externally provided workers.
• The business’ employees are either creating or preparing to create or manage intellectual property (IP) – which businesses need to provide evidence of.

For more information or advice on claiming R&D tax credits, book a demo.

 

As we prepare to enter a new year, businesses must take a moment to reflect on the last 12 months as they put plans in place for 2021.

For most businesses, the events of 2020 will have been completely unprecedented and how each company has reacted to this crisis will be unique.

However, out of the panic and strife of the last 12 months, certain things ring true for many businesses regardless of their size or sector.

Our team have taken time to look at the lessons we have learned and the changes within other businesses to create a list of lessons that we feel no business can ignore.

The importance of technology

With millions of people forced to leave their usual workplace and get used to working from home, companies have had to invest millions of pounds in new technology to ensure that it is ‘business as usual’.

Given this surge in investment and a change to the way we work, it is no surprise that around 80 per cent of businesses expect their IT and technology budgets to grow or remain steady in 2021, according to a new study by Spiceworks Ziff Davis.

Of the more than 1,000 businesses surveyed, 76 per cent said they plan on long-term IT changes as a result of COVID-19, while 44 per cent plan to accelerate digital transformation plans.

One of the key trends in technology investment has been the implementation of cloud technology. According to CompTIA’s annual trend list in 2021 ‘Cloud is King’ and it has become a key ingredient in any current IT strategy.

Cloud-based solutions have demonstrated they are secure and enable businesses to work remotely without significant investment in additional infrastructure.

Understandably, many businesses may be concerned about investing in uncertain times, but if the last year has demonstrated anything it is that those that innovate have a higher chance of success.

The value of grants and reliefs 

For many smaller businesses, 2020 may have been one of the first years where they applied for and were successful in getting grants.

In many of these cases, these grants may have been linked directly to Government financial support to help them survive but hopefully it has taught many business owners an important lesson – grants are not to be feared.

At a time when access to traditional forms of lending are limited and businesses are desperate for additional cash, we have also seen an increase in interest in tax reliefs and allowances.

This can particularly be seen in the growing number of R&D tax credits claims from one year to the next, which appears to be rising again in the last tax year, as more than 50,000 businesses seek funding via this resource.

As organisations look to rebuild and recover in the years ahead, many will likely turn again to grants and reliefs as an alternative source of financing their growth – especially if other lenders are less willing to provide funding.

Trusted advisers 

With so many changes in the last year, businesses have had no other option but to call upon professional help.

Top of most businesses help lists has been accountants, who have played a vital role in supporting clients with the various Government schemes, which has helped them gain access to billions of pounds of financial support.

It should come as no surprise then that research from Xero – one of the UK’s leading cloud accountancy platforms – found that most small businesses considered their accountant as an essential part of their business’s continued success.

The study showed that six in ten small businesses relied on their accountant during the pandemic for survival, while 45 per cent of owners said that their accountant is more important to them than ever before.

Highlighting the importance of technology, 63 per cent said that the systems employed by their accountant had been essential, which is why it is not surprising that a third of SMEs revealed that the pandemic led their accountant to adopt new forms of cloud-based technology.

Looking ahead 

Many businesses are now entering a period of recovery and it is clear that owners hope to build more resilient operations for the future.

It seems likely that many companies will now apply the lessons from the last year to their plans, which is likely to mean a greater focus on innovation.

Accountants too will need to invest further in technology to keep up with the expectations of clients in the years ahead.

We are likely to see a growing amount of automation as well, which should make it easier for businesses to seek out new opportunities, like grants and reliefs, by removing much of the burden of preparing claims or managing the day to day operations of their organisation.

A new study has shown that UK tech start-ups have accessed more funding in the last year than new businesses in France and Germany combined.

According to The State of European Tech report, from venture capital firm Atomico, tech firms in the UK attracted capital funding worth around £37.4 billion within the last five years – including more than £9.3 billion in finance in the last 12 months.

Despite the uncertainty regarding Brexit and the Coronavirus pandemic, the report shows that investment in tech start-ups in Britain in 2020 was double the amount raised by its European counterparts in places like Germany and France.

Although other parts of the UK are seeing increasing investment in tech, London remains the primary tech hub when it comes to the amount of capital invested, attracting £7 million in 2020.

Paris was Europe’s second-largest tech hub, attracting £2.5 billion of investment this year – around 35 per cent less than London.

Reflecting on the latest findings, Culture Secretary Oliver Dowden said: “The UK is the tech powerhouse of Europe. We want to make sure that UK tech comes out of the COVID-19 crisis stronger than ever – supporting the sector through the recovery just as tech supported all of us through the pandemic.

“Our forthcoming digital strategy will unleash the full potential of tech innovators and entrepreneurs across the country, driving a new era of growth. The UK has long been one of the best places to start and grow a tech business and we intend to keep it that way by taking an unashamedly pro-tech approach.”

A key factor in the success of many tech businesses launching in the UK is the generous R&D tax credit system, which provides around £5.1 billion in funding a year that supports £36 billion of R&D expenditure.

If you would like help making the R&D tax credit claim process simpler, find out how our unique cloud-based solution can help you today by arranging a demo with our experienced team.

The UK Government has funded £22.5 million into five advanced research centres in Exeter, London and Loughborough, so industries can tackle waste, drive recycling and bounce back more sustainably from coronavirus.

Recycling of chemicals, construction, electronics, metals and textiles will now be more feasible with this funding.

Many sectors welcome this news, particularly the UK’s textiles industry, which almost create the same amount of emissions as cars, which are used for private journeys. Additionally, an estimate of £140 million worth of garments ends up into landfill every year.

These research centres will examine how the reuse and recycling of waste materials from chemical, construction, electronics, metal, textiles and transport industries can help to stop the production of 154 million tonnes of mineral waste each year. For reference, this is enough to fill 30,000 Olympic-sized swimming pools and will ultimately help to protect the environment and boost the economy.

Expanding and advancing the circular economy can help to lessen greenhouse gas emissions, it will conserve natural resources and present new opportunities for UK industries, and up to 500,000 jobs by 2030 (according to research).

Kwasi Kwarteng, Minister of State at the Department of Business, Energy and Industrial Strategy, said “we want to further the UK’s status as a world leader in finding green solutions to industrial challenges. Projects like these are excellent examples of placing manufacturers at the forefront of the green industrial revolution.”

“Creating a more circular economy for our waste and resources lies at the heart of this Government’s transformative agenda for the environment. We are committed to going further and faster to reduce, reuse and recycle more of our resources, with strong measures to enable this in our landmark Environment Bill,” adds Rebecca Pow, Parliamentary under Secretary of State at the Department for Environment, Food and Rural Affairs.

To find out how we can assist you and your clients with innovation funding via our software, book a demo today.

Businesses in the North of England and Midlands are still far less likely to make an R&D tax credit claim compared to their peers in the South of England, according to HMRC data.

R&D tax specialists Made.Simplr believe that this issue needs addressing to ensure the UK enjoys a swifter and more equal economic recovery.

HMRC’s R&D tax credit report for the last year suggests that most claims for this generous tax relief are still being made by business with a registered office in London, the South East or the East of England.

While Made.Simplr says that figures are slightly skewed by the fact that the data is based on where a business’s registered offices are located, rather than were the R&D took place, they still feel that there is significant potential in other parts of the UK to make a higher number of claims.

“This is a historic trend that is repeated year in and year out in HMRC’s R&D tax credit data,” said Dimitris Vassiliadis, Marketing and Business Development Director at Made.Simplr.

“While it is clear that the method for recording claims does complicate matters, there are clearly fewer claims being made in the North and other parts of the UK, like the Midlands, which is difficult to explain.”

The firm believes that a lack of understanding of the R&D tax credit system or limited access to advice may be an issue for some businesses.

Dimitris said: “The South contains a higher concentration of firms offering advice on R&D than many other parts of the UK, but we know that there are still many fantastic accountancy firms out there in the North and the Midlands working hard to provide advice and support to their clients.

“Unfortunately, it may be that many SMEs in the UK simply aren’t aware of what is on offer or they do not consider themselves suitable for the scheme.”

Made.Simplr says that potentially thousands of claims may be being missed as a result, preventing innovative businesses from a wide range of sectors from claiming millions of pounds of tax relief.

For example, preliminary data shows that £5.3 billion of R&D tax relief support has been claimed for 2018-19, corresponding to £35.3 billion of R&D expenditure – a further increase in the tax relief claimed on the previous years.

Made.Simplr believes the cloud-based technology that it has developed may be the solution, as it is able to pull data from existing sources, such as online accounting platforms to produce HMRC-ready R&D claims using the latest automation.

Dimitris added: “Now is the perfect time for accountancy firms to invest in technology, such as our own platform, to help automate the claims process.

“This can help to reduce man-hours, expand their capacity to provide advice to more clients and significantly reduce the costs and burden of making a claim.

“More must be done to help businesses across the UK access this vital tax relief, especially during difficult times such as these.”

Leading R&D tax specialists made.simplr is calling on businesses to accelerate their year-end to help gain immediate access to R&D tax credits to combat cash flow issues.

The business, which has developed an innovative, cloud-based R&D tax credit claim system, says that there are potentially millions of pounds of funding out there for firms via the tax relief.

With many traditional lenders restricting borrowing, business leaders could benefit from bringing forward their year-end date to advance the claim period.

R&D tax credits offer a fantastic opportunity to a wide range of businesses to tap into either cash via a tax credit or benefit from a substantial tax saving. In fact, more than £5.1 billion of support was made available via the scheme in 2017-18, according to the latest HMRC figures.

Sarah Malter, Managing Director at Made.Simplr, said: “Where a business’s year-end has already passed it may just be a simple proposition of obtaining their year-end information on qualifying R&D expenditure so that a claim can be quickly calculated for the potential tax benefit from the previous year.

“In these circumstances, with the right advice and a quick response from HM Revenue & Customs (HMRC), claims can be processed and the benefits received within a very short period.

“However, where a company is only part of the way through its current financial year, matters are a little more complicated.”

Where their year-end is only a few months or weeks away, they should prepare the records required to make a claim, added Sarah, including details of qualifying expenditure for projects they have undertaken during the financial year and submit this information to HMRC at the earliest opportunity.

“Where a business’s year-end is six months or more away and they are in desperate need of funding they could also seek a change of financial year-end,” said Sarah.

“This is quite an involved procedure, which may affect other aspects of their funding, but it could drastically accelerate a claim for expenditure made in the accounting period.”

Made.Simplr says that businesses looking to tap into urgent funding via tax reliefs should speak with their accountant first to make sure it doesn’t affect their business in other ways.

The firm is helping many accountancy firms to speed up their R&D tax credit claims already by using automation via the cloud to collate the information required to prepare an HMRC-ready claim.

Sarah said; “What would have once taken businesses or accountancy firms hours or days to produce, can now be done much quicker by applying the technology we have developed.

“By drastically speeding up the process and making it more efficient we are helping to reduce the cost of providing R&D advice and services for many accountancy firms and allowing them to tap into a wider audience.

“We believe that now is an ideal time for firms to be considering how they market and provide R&D advice to clients, as from our own experience many businesses are currently very eager to make claim and obtain funding that will help their businesses to survive this challenging period.”

Led by UK Research and Innovation (UKR&I), the Digital Security by Design (DSbD) challenge welcomed two new funding awards which will help with their objective of preventing hackers from remotely gaining command over online data and digital systems.

For example, these systems include autonomous cars and smart home security systems.

The Hut Group’s consortium’s funding 

A British e-commerce company named The Hut Group (THG), who is leading a group of researchers such as the University of Manchester and the University of Oxford, has been awarded £5.8 million.

This consortium will form a significant demonstration element to work with the multi-million-pound government-funded program, Morello, by Arm Ltd. Morello was previously awarded the UKR&I.

THG will advance £2.8 million of the funding into recruitment, plus specialist supplies for the study. The remaining £3 million, will be distributed to the universities.

Tests will be done on the benefits of DSbD technology to ensure the increased productivity and advancement of future world-leading services and products, plus the improvement of e-commerce security.

DiScriBe’s funding

A research collaboration at the University of Bath, named DiScriBe, has been awarded £3.5 million to concentrate on the social science side of digital security.

The aim is to “join the gap between security engineering challenges and the businesses and people who will implement them.”

To achieve this, the Department for Culture, Media and Sport has contributed £1.2 million, and the DSbD challenge has funded the remaining £2.3 million.

Professor John Goodacre, the Director of DSbD, states that “The significance of these two important awards is the momentum they will provide to the whole programme of work planned.

“The Soteria project led by THG takes a leader’s position in this undertaking and will provide a crucial demonstration of the security benefits DSbD Technology can bring to the increasingly critical e-commerce industry.”

For more information or advice on R&D investments, please contact our team.

Economists at the Organisation for Economic Cooperation and Development (OECD) have released a new report that assesses how effective tax breaks are at increasing research and development (R&D) activities.

The new study has found that for every euro that Belgium or Portugal offer in corporate R&D tax breaks, each nation gets more than €3 back in increased R&D spending. Scandinavian countries, such as Sweden, are not far behind, getting back just short of €3.

While tax reliefs are effective in these countries in others, such as France, the return on R&D tax breaks is far lower. In fact, the French government gets back just 34 cents in extra business R&D expenditures for each euro offered via its tax relief system – the lowest of all OECD nations.

Across the OECD as a whole, about 55 per cent of total public support for business R&D comes in the forms tax breaks, with the remainder provided via “direct” subsidies, such as grants or loans.

The OECD has said the reason behind the apparent success of some schemes but not others is complex. Analysis of the data tends to suggest that tax breaks are most effective in spurring small and medium-sized companies to invest, especially if they don’t already do significant R&D activities.

In comparison, tax schemes for larger businesses, where more R&D activity is already undertaken, are less effective.

The data shows that on average, across the 20 OECD countries studied, R&D tax incentives for SMEs were worth €1.4 of additional R&D activity from the industry for every euro they offer in lower taxes.

Another key finding of the report was that where a limit is set on the amount of tax relief available for each business it tended to encourage, rather than discourage more spending.

Finally, the study revealed that tax incentives are most effective at helping businesses to fund close-to-market, experimental development projects rather than early-stage basic or applied research, which was more effectively encouraged via grants and subsidies.

Patrick Child, deputy director-general for research and innovation at the European Commission, which co-funded the study, said governments “needed to become smarter than ever in using scientific evidence…to guide policy choices”.

The study did not look at the UK’s use of tax incentives, but the latest data shows that £5.1 billion of tax relief helped to fund £36.5 billion of R&D expenditure in 2017-18 – meaning the Government supports around £7.15 worth of spending for every £1 of support it makes available through R&D tax credits.

To find out how we can assist you and your clients with R&D tax credit claims via our innovative software, contact us for a demo today.

 

The latest R&D tax credit data from HM Revenue & Customs (HMRC) shows that the use of the tax relief increased by 17 per cent between 2016-17 and 2017-18.

In total, during the 2017-18 tax year (the latest complete data set available) the amount of support received by businesses via the R&D tax credit scheme was £5.1 billion – a 15 per cent increase on the previous year.

This helped to fund £36.5 billion of R&D expenditure during this period, which again was an increase of eight per cent from the previous year.

When looking at the regional breakdown of claims, most are still being made by business with a registered office in London, the South East or the East of England.

Of course, this may slightly skew the real regional split of funding as it is based on where businesses registered offices are located, rather than were the R&D took place.

The Manufacturing, Professional, Scientific and Technical, and Information and Communication sectors continued to have the greatest volume of claims, making up a total of 66 per cent of all relief.

While many claims continue to be made by R&D tax credit ‘veterans’, there were 15,750 first time applicants for R&D tax credits in 2017-18 – a further increase of 10 per cent on the previous year, which was largely driven by those using the SME scheme.

Although a complete data set for the 2018-19 tax year is not yet available, as of 30 June 2020, HMRC reports there had been 59,265 R&D tax credit claims, of which 88 per cent were for the SME scheme.

The data also shows that £5.3 billion of R&D tax relief support has been claimed for 2018-19, corresponding to £35.3 billion of R&D expenditure – a further increase in the tax relief claimed on previous years.

While it is positive to see more and more businesses utilising the support on offer, there are still thousands of businesses, both large and small, out there who are eligible to make a claim but haven’t.

This represents an excellent opportunity for accountancy firms to show off their skills and increase their revenue by utilising our effective cloud-based solution to automate the R&D tax credit claims process.

To arrange a demo with our team to look at the untapped potential of R&D tax credits, please contact our team. 

The last few months have seen businesses across the UK invest heavily in technology and innovation as they attempt to grapple with the challenges created during the Coronavirus crisis.

A sudden move to home working for many has meant that lots of workers have had to rely on technology to get the job done.

Nowhere has this been truer than in the accountancy profession. The sector has played an integral role in the economy, providing businesses and their owners with support, advice and information that has been critical in decision making.

In fact, their impact has been so great that they are now considered to be key workers by many of the UK’s SMEs, according to online accounting platform Xero.

A new study by Xero showed that nearly half of small business owners think that their accountant played a vital part in the survival of their venture during the pandemic.

A further 37 per cent said that their trusted accountant played a key role in helping them retain staff during the depths of lockdown.

As well as relying on their accountant’s services, the SMEs that participated in the study were also keen to highlight the importance of technology in keeping their business functioning – with 48 per cent saying cloud technology had helped them to work with their accountant.

As the pandemic, now enters a new phase, with the potential for new restrictions, many may be asking what role accountants, and the technology that helps power their support, have to play in the UK’s economic recovery?

It is clear that a key focus for many SMEs is access to funding and finance, which can not only help them to rebuild their businesses but create additional resilience against future crises.

One key source of funding in an age where many mainstream lenders are more risk-averse is via tax reliefs, allowances and grants.

There are a number of sources of substantial financial support out there for businesses, but barriers often stand in their way.

These barriers include, but are not limited to, a lack of knowledge, confidence, time and costs. For many SMEs investing in the services of an accountant to access these sources of income just may not be a possibility or they may not have an adviser with sufficient knowledge to offer assistance.

Once again this is where technology can come to the aid of accountants. For many smaller firms of accountants, hiring a specialist in R&D tax credits or capital allowances just isn’t cost-effective, so in some cases, firms feel the need to either turn clients away or outsource claims to larger practices.

At a time where every firm is looking to maintain revenues, impress clients and build resilience within their own practices this is not an effective approach.

Thankfully, due to the cloud-based innovations introduced by the likes of Xero, QuickBooks and FreeAgent many smaller innovators have sprung up who can provide apps or solutions that can assist with niche areas of accounting.

One such solution is our own Software as a Service, made.simplr. Developed by a team with years of experience helping businesses and smaller accountancy firms with R&D claims – helping to raise more than £30 million for SMEs – we have developed a solution that can quickly and easily produce HMRC R&D reports using automation and existing cloud platforms.

The benefits to accountants are obvious, as it takes away the need to outsource services, reduces costs and opens up new revenue streams.

While ours is an example of how technology is playing a role in the recovery and resilience of businesses, we are by no means alone. There are many other new innovations on the horizon that are designed to assist accountants and their clients.

Technology undoubtedly has an important role to play in the success, not only of the accountancy industry but the vast array of businesses they support and to whom they are considered key workers and trusted advisors.

In this new age of innovation, it is unfortunately those who do not adapt and implement technology that will suffer most. Some firms will have to realise that investing in new systems will not lead to the replacement of their jobs or create additional burdens, but rather it will empower them to provide more advice to clients by freeing their time.

What’s more Xero’s study shows that many businesses have come to expect an innovative, technology-led approach from their advisers and in failing to embrace this they may cut themselves out of the market.

With a growing reliance on technology within accountancy practices and a desire in many firms to innovate it is important that partners and directors explore the possibilities that are out there.

Our team is already supporting businesses with their digital transformation journey and is ready to assist more firms during this challenging period. To find out more about our unique R&D tax credit solution, please book a demo!