By Emma Lewis, Myriad Associates
HMRC regularly releases statistics that look at the numbers of R&D Tax Credit claims in the UK, as well as who’s claiming and where. It’s a useful piece of data that helps show where in the country innovation is occurring and the types of companies most benefitting from R&D tax relief.
With Brexit uncertainty followed by an economically ravaging global pandemic, the good news is that innovation appears to still be thriving. Here we take a look.
What is the R&D Tax Credits scheme?
Research and development (R&D) Tax Credits are a government-backed tax relief scheme that rewards UK companies for undertaking innovative projects. It’s a valuable source of cash that firms can use in creating new products, services or processes or improving existing ones.
As far as tax relief goes, R&D Tax Credits are incredibly generous too with as much as 33% of eligible R&D costs reclaimable against the company’s Corporation Tax bill. Even loss-making companies can benefit with a lump sum credit instead.
Furthermore, HMRC has deliberately made the scope of qualifying R&D projects and costs massively broad. Everything including staff wages, overheads, testing costs and more can be claimed for – and much more besides.
As long as scientific or technological advancement has been made (that benefits the wider field your company operates in, not just the company itself) then R&D Tax Credits are likely to follow. The difference the award can make to small businesses is particularly important, especially in these challenging times.
“The R&D tax relief process can be confusing for those that haven’t gone through it before and many businesses are under-claiming”, said Barrie Dowsett, CEO of R&D tax claim experts Myriad Associates.
“This means that many SMEs are missing out on tax credits that could amount to tens of thousands of pounds. For small businesses, these savings can have a huge impact, allowing them to further invest in their operations and team”.
How many R&D tax claims have been made through the pandemic?
Latest R&D statistics published in September 2021 show that R&D tax claims actually increased by 16% in 2020, with 85,900 claims made in total.
Small and medium sized businesses have done particularly well from it, with 76,225 R&D Tax Credit claims made during the same period.
The government is really keen for UK companies in all industries to invest in innovation as a way to strengthen the economy. The R&D Tax Credits scheme is therefore divided into two branches – the SME scheme and the Research and Development Expenditure Credit (RDEC). As the name suggests, the former is aimed at smaller businesses, while larger companies (and small ones that have previously claimed state aid) should use RDEC.
The SME award at up to 33% of eligible R&D costs refunded is more generous than the RDEC scheme at 13%, however the larger the company the bigger the payout tends to be. These key incentives, coupled with a better awareness of R&D Tax Credits in general, has therefore seen the number of first-time SME claimants rising by 25%. First-time RDEC applicants have gone up by 7%.
How much R&D tax support did companies get?
Throughout 2020, the total amount of R&D tax relief paid out to UK companies stood at an impressive £7.4 billion. That’s 19% up on the £6.3 billion of the previous year.
Additionally, SMEs are grabbing a larger slice of the pie when it comes to the amounts they’re receiving. Indeed, under the SME branch of the R&D Tax Credits scheme, the government paid out 25% more than previously, amounting to £4.4 billion. Larger companies claiming under RDEC received £3.1 billion.
“Although the volume of claims under the SME scheme is much larger than under the RDEC scheme, RDEC claims are generally much larger than those claimed by SMEs.” – HMRC
Having said that, despite the fact that 72% of claims submitted were £50,000 or under, 33% were more than £2million which is a hallmark of larger companies.
Which industries have been claiming the most R&D tax relief, and where are they?
The R&D Tax Credits scheme is open to any UK company in any location, as long as they’re registered for UK Corporation Tax.
However, some industries such as Fintech are naturally much more vigorously innovative than others which automatically makes them big R&D tax relief claimants.
We can see from the data that in 2020, 65% of all claims came from three big industries. They were:
- Manufacturing (comprising 22% of all claims)
- Information and Communication (also comprising 22% of all claims)
- Professional, Scientific and Technical (19% of all claims)
In terms of geographical locations, it’s perhaps unsurprising that almost half of the total number of R&D tax claims (49%) came from London and the South East. However, the North West is seen to follow closely behind.
Innovative companies should avoid missing out
It’s been an incredibly tough time for companies and this will likely be the case for some time yet. However, as these statistics show, UK firms still put a high value on research and development work even in the face of adversity. And with R&D Tax Credits footing a large part of the bill, R&D tax relief claims are expected to rise exponentially.
