Many UK Firms Fail To Cash In On New R&D Tax Credits

by Robert Lee, Tax-News.com, London

16 February 2004

A study undertaken by accounting firm Ernst & Young has found that only a small percentage of UK firms are taking up their right to claim new Research and Development tax credits.

The survey, undertaken amongst sixty firms predominantly in manufacturing, although from a variety of sectors, found that only 20% had received any advice on how to claim the improved R&D credits.

Furthermore, only 26% of companies had made a claim for the credits, with one in three of these reporting that they had difficulties in identifying qualifying R&D activities, according to the survey.

The study also indicated that Inland Revenue made enquires in 40% of the claims for tax credits.

"Many more companies should consider submitting R&D claims. If there are practical hurdles, they should submit representations to the Inland Revenue as soon as possible,” stated Vijay Thakrar, partner and head of R&D tax at E&Y.

“We have had a recent meeting with the Inland Revenue's (IR) technical and policy specialists, and they report that they are very willing to listen to companies' practical issues on R&D claims, as they seek to draft the changes announced in last year's Pre-Budget Report,” he observed.

Meanwhile, Paul Harris, an R&D tax specialist at the firm also encouraged more companies to make a claim for the tax credits.

"The companies that we have assisted with their R&D claims have found it a very worthwhile and cost effective exercise, reducing large businesses' corporation tax liability by 7.5p for each pound of R&D spend and obtaining significant cash repayments for small and medium sized enterprises (worth up to 24p in the pound)," he noted.

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