Why are Northern Ireland businesses lagging behind when it comes to claiming R&D tax credits?
THERE'S still much work to do to ensure business owners and financial directors understand exactly what R&D tax credits could mean to their business.
R&D tax credits are the most generous yet under-claimed corporation tax relief available in the UK. The incentive enables businesses to recoup substantial development costs as cash or credit for every year they have qualifying R&D activities.
But HMRC statistics reveal thousands of businesses are not claiming their full entitlement, particularly in Northern Ireland, which accounted for only 3 per cent of total claims in the UK and just 1.6 per cent of total tax benefits claimed.
So just why are Northern Ireland companies' claims lagging behind and how can they use this incentive to retrieve every penny they are entitled to?
As a specialist R&D tax credit advisory firm, our experience tells us that the answer is simple: business owners and leaders need to gain a thorough understanding of what qualifies for this specialist relief and what does not.
Northern Ireland is leading the way in innovation across industries such as engineering, technology, manufacturing and construction. A fair assumption would be that many businesses operating in these sectors are among the 785 that claimed R&D tax relief in 2016.
But this is not the case, because despite Northern Ireland punching above its weight in innovation, it falls behind nearly every other UK region in claiming back its full entitlement.
The main reason for this is a lack of understanding of R&D tax credits and complex legislation. Many business owners are aware of the scheme, yet most believe R&D tax relief is limited to white coat industries. This is not true - it's available to businesses in all sectors.
We recently prepared a successful claim for a local software company, securing more than £120,000 in R&D tax relief which it didn't realise it was entitled to.
There is a severe lack of understanding as to who should prepare R&D claims. Many companies believe their accountants should review claims because it involves tax. They are delighted when they are told they can claim back any relief.
What they don't realise though is that without specialist advice, they are only claiming a fraction of their entitlement. We recently reviewed a Lurgan-based company whose accountant advised that they did not undertake any R&D. We realised they were innovative and secured £81,289 in cash which has now been reinvested back into the business.
We often receive calls from potential clients who have made claims themselves. While it's good they are claiming, it will almost certainly not be the full amount as most companies do not fully know what qualifies and getting it wrong can have serious HMRC consequences.
The best way to avoid this is to speak with a specialist R&D advisory firm (many offer free consultations) and ensure you claim for everything you are entitled to. Even established accountancy firms often seek the advice of specialist R&D firms with experienced technical and legislative experts.
At Momentum, we are working hard to change this tide and have secured around £100 million in R&D tax credits in virtually every business sector both locally and throughout the UK.
:: Tom Verner is managing director of research and development tax credit specialist firm The Momentum Group. For more information and to check if your business qualifies for R&D tax relief opportunities visit www.momentumgroupni.com