Director of specialist adviser Jumpstart
At a time when every penny is a prisoner and companies are scouring through their accounts to identify even the smallest cost saving, it is a mystery that the deep pool of research and development tax credits remains largely unruffled.
The latest data, published last October, showed that claims totalling £980 million were made on the year ending March 2009, up by £170 million on the previous year. But that is a drop in the ocean compared to what could be obtained if companies properly identified their products, processes and services.
It is not as if the government and HMRC are discouraging them. This year's Budget increased relief for small companies - that is, with under 500 employees - to 200% of qualifying R&D expenditure from April and to 225% next year. Even loss-making SMEs may be entitled to a cash payment worth 25% of their qualifying spend.
So why is there such a general reluctance to engage with the biggest incentive the government provides for investment in business R&D - and which offers financial benefits that could, in many cases, make the difference between survival and failure?
The most common answer to this question is that businesses - which are already fighting to keep their heads above water - are too busy, or that the application process is too complicated and time consuming.
But there is a more fundamental cause, a genuine problem of perception. It is that many businesses simply do not see themselves as the type of organisation which is involved in R&D.
If the man on the Clapham omnibus is asked what his understanding of R&D is, the reply would unfailingly involve scientists in white coats with test tubes. In fact, the range of qualifying activities is astonishingly wide, and boils down to a simple principle: that if you change the state of something from raw material to finished good or improve the way something is made, you are almost certainly eligible. The only question is how much?
Take the classic example of the sausage maker, in search of the perfect bite strength for his banger. He has to discover exactly how much collagen makes the ideal composition of his casing. Now, he may regard this just as a business necessity - but his objectives and the technical challenges he has to go through to achieve them are R&D.
As far as who is eligible for R&D tax relief, it is easier to list who is not - that is, companies in the financial sector, retail, real estate and hospitality, all of whom are users of technology, rather than initiators.
That leaves the rest: manufacturers, engineers, software makers, designers, science consultancies - virtually anyone who can demonstrate that they have discovered a new and better way of doing something.
And therein lies the problem - getting companies to recognise and realise the worth of what they are doing, even if, to them, their activities seem like everyday processes which are just part and parcel of the business.
The reasons why company executives fail to investigate the full potential of R&D tax credits are many and varied. Some believe that it just isn't worth it, because they 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, which will eventually have to be repaid.
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.
Some argue that they have claimed unsuccessfully in the past, or that they are already claiming, but this ignores that a fresh investigation will almost certainly uncover new or additional qualifying criteria.
Other misconceptions include the belief that a company is disbarred from tax relief if it is not currently paying any tax; that it is ineligible because it is already obtaining grant funding (this may reduce relief, but would not disqualify it); or that its research was not a commercial or technical success.
This last is a common misconception. The fact is that, to qualify, the outcome of research must be uncertain, and there is no surer indicator of uncertainty than failure.
The lament that the process is complicated has some justification. Although the actual form - which is a bit like a tax return and deals with the numbers - is straightforward, the accompanying documentation has to be detailed, comprehensive and accurate and the rigour of its argument is akin to a PhD dissertation.
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.
Research and development is what keeps British business vigorous, innovative and competitive. The government is keen to maintain this state of affairs and is providing the cash incentive to do so. It would be a shame to let such an opportunity slip away.