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UK SMEs Missing Out On 'Free Money,' Advisor Says

by Robert Lee,, London

09 May 2007

The UK's small- and medium-sized businesses are still missing out on valuable research and development tax credits, despite efforts from the tax community to spread the word and actively encourage them to apply, according to KPMG’s latest survey of middle market companies.

The survey, which will be released in full in the next few weeks, reveals that just 20% of middle market companies sampled felt they were sufficiently aware and well-informed about the R&D tax credit scheme. And of these, less than half had actually applied.

Over half of the respondents who claimed they knew something about R&D tax credits but did not possess a high level of awareness, believed that this tax relief was irrelevant to their industry.

David O’Keeffe, head of KPMG’s R&D tax credits team observed that: “Companies are turning their backs on what is effectively free money. Our findings clearly demonstrate the widespread lack of understanding of the huge breadth of the definition of R&D in the tax legislation. Forget the classic images of white coats and test tubes, the vast majority of claims are by companies outside the pharmaceutical industry. R&D is by no means just about blue sky research.”

Furthermore, of the 20% claiming high levels of awareness, over 70% were unaware that, as of 31 March next year, the historic time period over which R&D tax credits can be claimed will reduce from the current six years to just two years. Claims for accounting periods ending on or before 31 March 2006 must be in before the end of March next year.

David O’Keeffe added: “Although March next year sounds like it’s a long way off, in our experience it can take several months to put a claim together. If companies don’t take steps soon to ensure these claims are submitted in time, the opportunity will be lost forever.”

The survey showed that of those respondents that had been through the process, only one in three said they found the preparation process easy. However, half subsequently found that it was generally easy to get the claim agreed by HM Revenue and Customs.

Four out of five of these respondents that had made claims enlisted the assistance of outside advisers to compile the submission, and the same proportion agreed that they benefited from this as a result.

David O’Keeffe concluded: “Time’s not up yet for companies to get the maximum benefit from these R&D tax credits but the clock is certainly ticking. SMEs should not assume that they don’t qualify and if they do seek to make a claim then professional advice can make the process considerably easier.”

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