R&D Tax Credits form a key part of Government strategy to boost innovation and is a highly rewarding scheme which allows UK companies to reduce their Corporation Tax liability and/or receive a cash injection from HMRC. It is one of the main incentives provided by Government to encourage R&D spending, leading to greater investment in innovation.
Businesses can recover up to 33% of development costs invested in innovation and advances in products, processes, materials and software development.
Here we look at the key points from the latest statistics released by HMRC covering the 2017/18 tax year, which provides a positive outlook;
Source: HMRC – Download the full HMRC R&D Tax Credit Statistics – Sept 2020
17% year-on-year increase in claims to 62,095
19% increase in the number of SME claims to 54,005
7% increase in the number of Large Company / RDEC claims to 8,085
15% increase in the amount of support claimed to £5.1bn
10% increase in first time SME applicants to 15,750
8% increase in the total amount of expenditure to £36.5bn
Since the R&D scheme was launched in 2000-01 ……
Over 300,000 claims made
£33.3bn in tax relief claimed
2018-19 statistics so far
So far there have been 59,265 claims made, 52,160 under the SME scheme and 7,105 through the RDEC scheme. This is based on partial data for the year and is expected to increase further as more returns are received.
To date, just over £5.3bn in support has been claimed for 2018-19, corresponding to £35.3bn of R&D expenditure.
Due to the nature of the scheme, returns for the latest financial year reported (2018-19) can still be submitted past the cut-off date for the publication of these figures. As a result, data for 2018-19 is not yet complete. To avoid misleading comparisons between years HMRC have compared the years 2017-18 to 2016-17 in their publication when discussing change between years, and 2018-19 when discussing in-year characteristics.
The total number of claims for R&D tax credits for 2017-18 was 62,095, an increase of 17% from 2016-17.
The number of SME claims rose by 19% to 54,005, while the total number of claims for the RDEC scheme increased by 7% to 8,085.
So far there have been 59,265 claims for 2018-19, of which 52,160 are in the SME scheme and 7,105 in the RDEC scheme. These numbers are expected to increase as more returns are received.
£5.1bn of support was claimed for 2017-18, an increase of 15% from 2016-17.
So far, just over £5.3bn of support has been claimed for 2018-19, of which £3.0bn has been claimed through the SME scheme and £2.4bn by large companies under the RDEC legislation. A further £265m has been claimed by small and medium sized companies, including subcontractors, through the RDEC scheme.
The total claimed for 2018-19 is expected to rise as more claims are received and processed by HMRC. Based on these timings in previous years, we estimate that the final figure for 2018-19 will be around £6.3bn.
The level of R&D expenditure used to claim R&D tax relief in 2017-18 was £36.5bn, an increase of 8% over 2016-17, the majority (72%) of which was from large companies claiming under RDEC.
Whilst comprising only 28% of the total, SME expenditure showed strong growth year-on-year.
So far in 2018-19, £35.3bn in expenditure has been used to claim R&D tax relief, with an increase expected as more returns are received.
This graph (left) shows a concentration of companies with registered offices in London (20% of total claims and 29% of total amount claimed), the South East (15% and 19%) and the East of England (10% and 12%).
However, these figures should be interpreted with caution, as 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’ (24%), ‘Information and Communication’ (23%) sectors and ‘Professional, Scientific and Technical’ (20%), accounting for 28%, 19% and 24% of the total amount claimed, respectively.
These industries make up a total of 67% of claims.
There is a concentration in the number of claims in the lower bands (72% 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 (32%), corresponding to R&D claims made by the largest companies.
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 up to 10 years old (23% each, or 46% of the overall total).
The number of first-time applicants in the SME scheme increased from 12,350 in 2016-17 to 13,935 in 2017-18, a 13% increase.
The increases in enhanced expenditure rates and payable tax credit rates in recent years have made the SME scheme more generous and therefore more attractive to potential applicants, and there is also greater awareness of the scheme.
The R&D Tax Credits scheme continues to provide valuable cash flow to businesses to enable R&D and Innovation and it’s encouraging to see more companies, especially first-time claimants, making use of R&D Tax Credits as the upward trend continues.
We should not lose sight of the fact that R&D remains key to the UK’s recovery from Covid-19 and, with the pandemic effecting many businesses, there will undoubtedly be an effect on the value of claims due to the national lockdown, levels of R&D decreasing, budget cuts, lack of cashflow and redundancies.
We are seeing a growing amount of enquiries from new companies seeking to claim R&D Tax Credits and we take pride in raising awareness of the incentive, along with ensuring we offer our clients the best possible advice on which types of activity and associated expenditure are compliant with the legislative criteria, to ensure all claims made are fully robust, maximised and stand up to HMRC scrutiny.