Law firms wasting millions thanks to R&D tax relief blind spot

Nearly 9 in 10 (87%) of law firms could be eligible for research and development (R&D) tax relief but less than half have ever claimed.

Law firms are throwing away millions of pounds a year because nearly 9 in 10 companies could be eligible for tax relief on new services, specialist tax relief firm Catax revealed today.

In total, a massive 87% of businesses in the legal sector have developed new products or business processes in the past two years, research shows1.

This means they are in line for valuable R&D tax relief that the government provides to encourage innovation.

But despite 80% of firms knowing of R&D tax relief, only half (47%) report ever claiming it – either because they don’t think they qualify or they incorrectly believe that it could cost them money, the Catax study shows.

Incredibly, law firm executives underestimate the value of the average SME R&D tax relief claim by £29,167, according to the Censuswide survey.

Executives believed the average value to be just £16,833 when the true figure is £46,000 for firms in all sectors nationwide. Law firms report spending £178,002 on R&D on average.

R&D doesn’t even have to have been successful to qualify and claims can be backdated at least two years2.

Catax CEO, Mark Tighe, commented:

“The number of law firms who report developing a new service is relatively high.

“The national average is around 78.5% of business so the legal sector is punching well above the mean with 87%.

“It just goes to show R&D is not all about lab coats and multi-national companies, and the R&D doesn’t even have to have been successful to qualify.

“This means nearly all law firms should be looking at what they can claim. Cost benefit doesn’t come into it because most good R&D tax relief firms will work on a commission basis.”

R&D tax credits can help to reduce a limited company’s corporation tax bill or be claimed as a cash sum reimbursement from the HMRC. R&D tax relief only applies to those businesses that are liable for corporation tax, including businesses making a loss.

1Source: Censuswide survey of 1,000 senior and middle managers nationwide.

2Claims for R&D tax relief must be made within two years of the end of the tax year in which the R&D was undertaken.


Kindly shared by Catax