Grant Thornton says thousands of small to medium sized businesses (SMEs) are missing out on R&D tax credits totalling £125m a year because they are being hamstrung by restrictive categorisation of what HM Revenue & Customs believes constitutes innovation.

In the four years after the inception of research and development (R&D) tax credits, the amount claimed by UK businesses has increased by more than 800% – but as a percentage of UK gross domestic product (GDP) R&D has remained relatively flat over the last 10 years, dropping from 1.78% in 1997 to languish at 1.75% in 2005.

Sarika Patel, Grant Thornton head of technology, said R&D was no longer the sole domain of scientists in lab coats and was potentially a facet of every business. ‘Anything that adds value to a product or process is potentially entitled to tax relief, but in our experience businesses are not actively looking out for this,’ she said.

‘There are issues with complexity which the Government needs to address. It also needs to provide clarity as to how R&D tax credits apply to a business's everyday operations and hurry through current R&D proposals awaiting EU approval.’

Further reading:

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