The HMRC Research and Development Tax Credits statistics came out this month and the future looks bright for R&D in the UK, with year on year growth of claims since the tax relief started.
Tax credits started in 2000 in a bid to support businesses to innovate and create new products. It appears it is working. Since the launch, there have 170,000 claims, with a total £16.5bn claimed.
We’re pleased to see claims have risen by 20% to £2.9bn in the last tax year. Which is an increase of £470 million. Overall more people are aware of the scheme and the many changes over the year make it even more favourable for businesses to claim.
Comparing this past year's rise of 20% looks rather small to the 47% rise between 2013/14 and 2014/15, but there have been a few changes in the R&D landscape over the past few years.
Firstly, the number of claims from SME’s doubled with the removal of the £10,000 limit in 2012/13. And then Universities and similar establishments were unable to claim under the RDEC scheme after 1st August 2015, which had amounted to £2bn of R&D expenditure.
R&D claims by large businesses
Larger companies are taking the lions share of the billions claimed every year, which is largely due to their bigger budgets when it comes to R&D spend.
The total amount of support claimed by large businesses increased by 17% in 2015-16. This increase may be due to HMRC’s move from the large company scheme to the RDEC scheme, which offers a higher rate of support. Out of the £2.9bn claimed in the last tax year, £1.5bn of this went to large companies.
The level of expenditure also rose by 4% this last tax year to £22.9bn. 80% of this majority was by companies claiming under the large company or RDEC schemes.
SME’s and start-up R&D claims
Things are also looking bright for start-ups; with 17% of the total R&D spend for 15/16 going to businesses trading for less than 5 years.
The removal of the £10,000 limit for R&D claims has seen SME claims double since 2012/13 and SME claims are still growing.
We can also look at how SME’s are claiming R&D tax relief. The majority of SME’s (12,700) opt for a reduction in their corporation tax liability. The rest (4,420) go for the cash payment alternative or a combination of tax reduction & cash.
4,745 of SME’s use these combination payments to bring their tax bill down to zero and then take the rest as a cash payment, which for a start-up can offer a great incentive.
“It's fantastic to see the upturn in R&D claims. We’ve certainly seen an uprise in larger businesses claiming since the move to RDEC, and we’ve been dealing with more start-ups.
Although we deal with clients internationally, we would like to see more businesses where we are based, in the Midlands, taking up this offer. UK manufacturing is now 8th in the world, and a recent report by The Midlands Economic Forum pointed to the West Midlands outperforming the rest of the UK due to the strength of its manufacturing. However, R&D claims don’t reflect this, with Midlands businesses still leaving money on the table, with the largest claims coming from the South East & London.”
David Eilbeck MD, G2 Innovation
R&D claims based on area & business type
There has been little change to the concentration of businesses claiming in London and the South East. Combined they account for 36% of all R&D claims and 49% of the total R&D spend. That’s a huge amount of cash focused in the south of England. However, HMRC does state that this may not be an entirely true reflection as the location of claim isn’t necessarily the same location as the research and development.
We can also see that the key players in R&D are Manufacturing at 28% of claims, Information Communication at 26% and Professional Scientific & Technical at 20%.
R&D with G2 Innovation
We work with clients internationally; Most of our R&D clients are in the manufacturing and software industries, which covers all manner of businesses from oil & gas to agriculture. We want to see more and more businesses claiming R&D, it’s good for business and the UK economy.
We’ve been claiming R&D for our clients since they were launched in 2000 and in that time we’ve supported 100’s of businesses, in fact, we’re still working with most of them.
We’re different to our competitors because we actually do R&D ourselves, so our technical skills are second to none. Meaning all our claims are 100% successful.
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