HMRC have published their annual R&D tax credits statistics report and it leaves me with one key question.
Why are so few of the claims made each year from the heart of innovation, the media sector?
The industry sector analysis in the report supports our view that the media sector/creative businesses may be missing out on claims. Although not completely reliable it shows that the vast majority of claims are in manufacturing and in professional, scientific and technical services, with information and communication only third. Based on our own experience with our creative business clients we think there should be more claims arising from the media sector due to the high level of innovation many such businesses employ.
So, what is deterring more creative businesses from making R&D claims?
HMRC themselves ask potential claimants to consider the following questions to help identify if qualifying R&D activity exists:
- What is the scientific or technological advance?
- Why was the knowledge being sought not readily deducible by a competent professional?
- How and when were the uncertainties actually overcome?
- What were the scientific or technological uncertainties involved in the project?
The words used may in fact deter applicants with reference to science and technology. On face value many might consider that, although involved in activities requiring innovation, they don’t pass the above test but we should look again. We have successfully submitted claims both for cash rebates as well as for a reduction in the main corporation tax liability, around the idea of innovation in relation to improvements in business processes such as the delivery of products and services to the consumer.
With the tax claim enhancing qualifying expenditure at up to 125% of the amount spent, a successful claim can currently save tax at 20 or 21%, depending on the size of the company, or in the event that the company is loss-making, a route is available for 14.5% of such enhanced expenditure to be reimbursed in cash. Either way, that’s a potentially huge and positive benefit.
In an ever increasing digital world of convergence media businesses may be involved in R&D activity unknowingly and miss the chance to make a valuable claim.