As the UK emerges from lockdown and restrictions are beginning to lift, the focus for the government is on how we can rebuild the economy following the damage caused by the coronavirus outbreak. Many businesses are in a state of financial fragility and priorities will be unsurprisingly around rebuilding cash flow and reassessing business models to adhere to the new norm.
With the government’s long term focus likely to be on how British businesses can innovate their way clear of the crisis, accountants are set to play a very significant role in the UK’s economic recovery.
Since the SME Research & Development (R&D) tax relief scheme launched back in 2000, £26.9 billion has been claimed. Whilst awareness is thankfully on the rise, there is still a gap due to misunderstanding around the scheme and its criteria. The same cannot be said for Patent Box, which is woefully underutilised because of a total lack of awareness around intellectual property. There is £1bn of support given to the Patent Box scheme but less than £60m actually falls into the hands of SMEs.
There have been all kinds of misconceptions associated with R&D tax credits over the years, ranging from confusion around whether a company is too small, what is genuinely considered an appropriate R&D project, as well as reservations over the time and effort associated with claiming.
While it’s understandable some businesses are nervous around the process, the Government wants to reward innovation and it is your role as trusted advisers, to help businesses navigate their nervousness and ensure they are able to access this public benefit.
Not only will innovation draw investment to the UK and boost its recovery from COVID-19, it also stands to fulfil the ‘levelling up’ pledge and stand the UK in good stead when it comes to negotiating trade deals after Brexit. HM Revenue and Customs (HMRC) continually affirm the commitment to increasing funding for R&D – the industrial strategy target is 2.4% of GDP.
Innovation is taking place right now in businesses up and down the country, across all sectors and regions, but so many businesses don’t realise they have qualifying projects and are missing out on a potentially vital source of funding.
When there is a claim being made, more often than not it is much smaller than it could be and rarely does it stretch to a conversation around intellectual property.
Accountants remain key
There needs to be a greater focus on encouraging organisations to invest in valuable R&D projects, innovation and the protection and realisation of their intellectual property value. Accountants are well placed to shift how the system is viewed in the UK. Many small and medium sized businesses are facing financial difficulty as a result of the current crisis, and any plans to innovate may have been put on hold as they try to mitigate cashflow issues.
However, innovation is still possible and could be the key to survival for many businesses, especially if it is part funded by the public purse. Accountants, have the ear and the trust of their clients to ensure they have sight and knowledge of the full range of options currently open to them, including R&D relief and Patent Box.
Sadly, the R&D tax industry does have some advisers out there who market themselves in a way not dissimilar from PPI, which creates all the wrong impressions of what the scheme is about. It’s not ‘free cash here’, and accountants are well placed to make sure clients do not fall into the hands of this type of adviser.
The simple message is to encourage proactivity, and for accountants to be comfortable with approaching the subject with clients. Accountants don’t necessarily need to be experts in the field, they just need to be aware that this funding is so readily available.
Once they have started the conversation, they can help direct the client to specialist agents who are the subject experts and can easily define what could be classed as R&D and what in their R&D has the potential for patents – this will determine how much a client could be benefit from government support.
Offering a service to support innovation can show clients that their accountant can provide a depth of guidance and knowledge that helps them through these challenging times without sacrificing their future business growth.
By Luke Hamm, CEO, GovGrant