Treasury owes £84bn to SMEs in R&D tax relief

The Treasury owes Britain’s small businesses a staggering £84bn in backdated Research & Development (R&D) tax relief because the tax break is so poorly advertised, tax relief specialists Catax has revealed.

Around three and a half million SMEs actively trade in the UK and 57% of them are eligible for tax credits on R&D. The policy is billed by the Government as the lifeblood of a versatile and progressive economy.

However, only around 1% of SMEs have ever claimed the relief. This means approximately 1.96m SMEs – are owed money back.

With offices in Manchester, London and the Channel Islands, Catax employs more than 90 people.

In Catax’s experience, the average claim amounts to £43,000. Relief can be backdated up to three years, as HMRC rules say you can claim up to two years after the end of the tax year in which the expenditure occurred.

The research shows the Chancellor of the Exchequer is sitting on an SME war chest worth £84.2bn – nearly twice the annual budget of the Ministry of Defence and enough to run the NHS for eight months.

Catax stresses that once a company realises it can improve and develop products cheaper, claims for R&D tax credits typically go up year on year as firms seek to take full advantage.

Catax chief executive Mark Tighe said: “The sum owed to SMEs is astounding when you think what they could do with that money in the face of significant economic headwinds.

“It’s enough to transform the SME landscape the growth prospects of these companies – if only they knew they could claim.

“The Treasury needs to do more to explain to firms what counts as R&D. Most don’t realise it’s not just a new jet engine, but a new beer, a piece of software, an engineering process or even a new innovative dish at a restaurant.”