The R&D Tax Credit scheme provides businesses with a valuable cash injection for innovation. Each year HMRC releases the latest statistics for the latest period as well as reviewing prior years figures to provide an accurate reflection of claims made.
These statistics are compiled using claims made for tax credits which are reported on the Corporation Tax (CT) return form CT600. R&D tax relief claims may be submitted up to one year after the filing deadline, therefore the 2017-18 statistics presented will be subject to revision in next year’s publication. As well as new statistics for 2017-18, this release includes revisions to 2014-15, 2015-16 and 2016-17 as a result of receiving additional returns and changing the data source used to produce the statistics.
Here we look at the key points from the latest statistics released by HMRC which overall is positive news;
Finalised 2016-17 statistics
increase in claims compared to the previous year to 52,335
increase in the number of SME claims to 45,045
increase in the number of Large Company / RDEC claims to 7,285
increase in the amount of support claimed to £4.4bn
increase in first time SME applicants to 12,120
increase in the amount of total value of expenditure to £32.8bn
Statistics since the R&D was launched in 2000-01
Over 300,000 claims made
£26.9bn in tax relief claimed
2017-18 statistics so far
So far, there have been 48,635 R&D tax credit claims for 2017-18, of which 42,075 are in the SME R&D scheme. This is based on partial data for the year and is expected to increase as more returns are received.
So far, £4.3bn of R&D tax relief support has been claimed for 2017-18, corresponding to £31.3bn of R&D expenditure.
Due to the nature of the scheme, returns for the latest financial year reported (2017-18) can still be submitted past the cut-off date for the publication; as a result, data for 2017-18 is not yet complete. To avoid misleading comparisons, we have compared figures for2016-17 to 2015-16 in the publication when discussing year-on-year change, and 2017-18 when discussing in-year characteristics.
Sachin Chauhan, Managing Director of Innovation Tax Specialists commented;
“Whilst these statistics show that more companies are accessing this important relief, 41% of claims made were lower than £15,000 in value, which alone is insufficient to drive innovation and provide the necessary funding businesses require to develop new products, processes and systems.
With average R&D claim values for an SME currently £53,714 (and £315,789 for a large company), new measures need to be put in place to ensure small companies requiring the cash injection are able to easily access it to balance risk, cash flow and uncertainty and obtain larger amounts of funding to really make an impact.
We should also not lose sight of the fact that Innovation remains key to the UK economy and the Government needs to do more to support these companies”.
Taz Esmailji, Tax Director of Innovation Tax Specialists added;
“The government needs to bolster innovation incentives to ensure the UK is on target to achieve the R&D spending target of 2.4% of GDP, and we would recommend the following:
- Increase the enhancement rate for SME’s
The ongoing reduction in Corporation Tax rates – from 20% to 17% – reduces the yield / benefit for profit making SME’s claiming R&D relief; an increase in the enhancement rate will help balance this. The last increase took effect in April 2015, and it’s time this was revisited.
- Increase the current PAYE cap
In our opinion, the PAYE cap announced in the 2018 budget – whilst more generous than the previous cap which was effective for accounting periods ending before April 2012 – still has room for improvement; we feel there is scope to consider increasing the 300% cap on the total PAYE and NICs liability. This discrimination on companies using contractors does not address the issue SME’s face in not being able to commit to employing full-time staff for all R&D activities when funding is scarce. The current cap will unfortunately result in some companies reducing their spending on R&D as a result.
- Increase the scope of eligibility for R&D Tax Credits
The current eligible cost categories for R&D relief can be quite restrictive and steps are needed to enable more cost categories to be within the scope for relief. For example, whilst there has been a move to cloud-based software development in recent years, hosting costs are still classed as a ‘rental’ cost and therefore ineligible for relief. In our view, costs pivotal to R&D activity should fall within the scope of a claim and we would therefore recommend that the rental of specialist equipment for R&D should fall under a qualifying cost category.”
Number of claims received for R&D tax credits by scheme
The total number of claims for R&D tax credits for 2016-17 was 52,335, an increase of 20% from 2015-16. The number of SME claims rose by 22% to 45,045, while the total number of claims for the large company and RDEC schemes increased by 12% to 7,285.
So far there have been 48,635 claims for 2017-18, of which 42,075 are in the SME scheme and 6,555 in the RDEC scheme.
Almost £4.4bn of support was claimed for 2016-17, an increase of 14% from 2015-16.
So far just over £4.3bn in support has been claimed for 2017-18, of which £2.3bn has been claimed through the SME scheme and £1.8bn by large companies under the RDEC scheme. £225m has been claimed by SME’s through the RDEC scheme.
Based on the timings of claims received in previous years, HMRC estimate that the final cost for 2017-18 will be £4.95bn.
This shows a concentration of companies with registered offices in London (20% of claims and 29% of total claimed), the South East (16% of claims and 19% of total claimed) and the East of England (10% of claims and 13% of total claimed).
Should be interpreted with caution because the regional split is based on registered office location, which may not be where the actual R&D activity is carried out
There is a concentration in the number of claims in the ‘Manufacturing’ (25%), ‘Information and Communication’ (24%) sectors and ‘Professional, Scientific and Technical’ (20%), accounting for 29%, 19% and 24% of the total amount claimed, respectively.
These industries make up a total of 69% of claims.
The number of first-time applicants in the SME scheme has increased from 10,540 in 2015-16 to 12,120 in 2016-17, a 15% increase.
The introduction of the RDEC scheme in 2013-14 resulted in an increase in first time applicants from large companies. Since then growth has levelled off with 1,750 new applicants in 2016-17, which is similar to the number in 2015-16.
This shows the distribution of R&D tax credit claims by age of the companies registered with Companies House for 2017-18 returns. While returns are still being received for the financial year, enough returns have been submitted to provide a useful comparison over company age. The largest number of claims came from companies between 5-10 years old (24%).
Cost band analysis of R&D tax credit claims, 2017-18
This shows the distribution of R&D tax credit claims by cost band for 2017-18. While returns are still being received for the financial year, enough returns have been submitted to provide a useful comparison over cost bands.
There is a concentration in the number of claims in the lower bands (74% in cost bands up to £50k), which corresponds to the growth in the SME scheme seen in recent years. The largest concentration in amount claimed is in the ‘Over £2m’ band (34%), corresponding to R&D claims made by the largest companies.
The full R&D Statistics can be viewed on the following link here.