Scotland's SMEs are outpacing larger firms in the race to the substantial spoils to be gained from the government's research and development tax credit schemes, which are designed to foster innovation.
One of the main reasons that smaller firms are reaping the rewards is that they are taking advantage of the services of companies which specialise in well-drafted, compliant claims, rather than generalist accountancy practices, which do not have the same focused expertise.
New figures published this month show that, by clinging to traditionalist approaches to a complex and time consuming application process, Scotland's larger firms are missing out on up to £40m a year. Even the SME sector, according to the statistics issued by the tax authorities, is not submitting as many claims as it should on a per capita basis. As a result, R&D tax credit specialists such as Glasgow and Edinburgh-based Jumpstart are becoming involved in a concerted push to bring Scotland into line with the rest of the UK.
Jumpstart managing director Brian Williamson said: "SMEs in general are still being disenfranchised as a result of lack of awareness of tax credit expertise. But they are converting more quickly than larger companies to the idea of engaging professionals to obtain their just rewards."
The reluctance of Scottish companies to fully exploit government research incentives is reflected in figures from Nesta, the science and technology charity, this week (Mon, Sept 10) showing that spending on research by UK plc fell by as much as £24bn last year. This is in stark contrast to countries such as the US, Germany, France and South Korea all of whom have spent more than the UK on research and innovation since the financial crisis began.
The figures from HMRC on claim values for 2010/11 show that Scottish SMEs made 500 R&D tax credit submissions, out of a UK total of 8140. This equates to 6.1%. On a per capita basis, Scotland should have submitted 676 claims, or 8.3%. However, as evidence of the disproportionate success of dedicated claims specialists, Jumpstart alone had 212 claims accepted by HMRC over the period. This is a remarkable 42.4 % of the total and a ringing endorsement of Jumpstart's business model, in which highly qualified and specialised teams of business and technical analysts mine into clients' processes to understand and complete successful submissions to HMRC. In the current year, Jumpstart is spearheading a major drive to bring Scotland's claims ratio more into line with the rest of the UK by increasing the number of submissions from 212 to 339.
In the larger company sector - 500+ employees - an inclination to adhere to a financial-only approach to tax credit submissions, usually through a large, generalist accountancy practice, is diluting full exploitation of the scheme. Scotland had 135 large company claims (7.1%) out of a total of 1895 for the UK. This is closer to the 157 which could be expected per head of population. However, the value of these claims compared to that of the UK was only 2.6%, or £40m short of their UK counterparts. In fact, London companies are claiming almost nine times more than large companies in Scotland. High-profile entrepreneurs such as Jim McColl of Clyde Blowers have been enthusiastic advocates of Scottish companies, regardless of size, using the services of specialists such as Jumpstart, which has a 96.4% success rate in its submissions.
Brian Williamson said: "The reasons company executives fail to investigate the full potential of R&D tax credits are many and varied. Some don't think they do enough R&D. Some simply don't want HMRC knowing more about their business than absolutely necessary. Some even think it's a loan.
"Most executives' first instinct, on hearing the phrase 'tax relief', is to run the concept past their accountant who, as far as identifying qualifying processes or procedures is concerned, will suffer from the same problems of perception as themselves.
"That is why companies such as ours employ post-graduate experts who not only understand the legislation in detail but can also interpret the complexities of companies and can explain the nature of the R&D in exact terms to the experts in HMRC who will make the decision on it."
Posted on Tuesday, 25th September, 2012