The governments of many countries offer a tax credit to companies that can demonstrate they are carrying out research and development towards the delivery of scientific and technological advances. This offers a significant boost to SMEs as it helps encourage them to undertake development that they may otherwise not. For governments it is beneficial as R&D boosts the economy and Professor Jonathan Haskel from Imperial College Business School, London, carried out research demonstrating that investing public funds in science and engineering research leads to economic growth. This means that research and development tax incentive schemes have the potential to be win-win for both the government and businesses. This is why so many countries pursue this option.


R&D tax incentives around the world

Each country’s scheme differs from the others, with some schemes significantly more generous than others. The thing that they mostly have in common is that a percentage of tax paid on funds spent by businesses on research and development activities are refunded to the company. In many cases companies will be expected to submit some sort of justification and cost break down to show that what they are claiming for really does correlate with the government’s definition of what is meant by R&D.

Deloitte researched global R&D tax incentives and identified that the majority of the 34 countries in the Organisation for Economic Cooperation and Development (OECD) countries offer some sort of tax incentives for those carrying out research and development activities. Many of these countries had also expanded their incentives since 2014. Many companies are eligible to claim, and the number of organisations benefitting from R&D tax relief has been increasing in many countries. Indeed, figures from the HMRC in the UK from 2015 suggest that the number of SME claims for tax relief/credit based on R&D grew by 23% against the previous year. The total amount of R&D claimed was £1.75 billion in the 2013-2014 tax year. Meanwhile the SR&ED scheme in Canada paid out in excess of $3.1 billion in 2014, and more companies are becoming savvy about the fact that they can claim.

SR&ED tax incentive

Are you eligible for SR&ED tax incentives?

Many companies may not think they can benefit from this type of tax credit because they underestimate the complexity of what they are doing. A review of the Deloitte report into research and development tax incentives quickly shows that who can benefit and how they can benefit varies from country to country, and the process for claiming is different in each. It is worth investigating what is offered as these schemes can make a big difference to tax payments. However, in many of the countries, SMEs are specifically targeted for this type of relief, making these schemes valuable for SMEs that are undertaking research and development in many countries. Large companies are also often eligible to claim, but sometimes the benefit of doing so may be lower for them.

In some countries, SMEs can even get access to financing based on the money they may be due back from the tax authorities. Fundsquire has been offering this service for several years, trialling it first in Australia where it was proven to be very popular and effective. Fundsquire now offers this service in other countries too.

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