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R&D tax credit claims hit new high

8th Oct 2018
Big data and information technology

New HMRC statistics have revealed the total amount of R&D support claimed increased by 25% to £3.7bn in 2015-16, with 43,000 businesses claiming tax credits for research and development, up 22% on the previous year.

However, a specialist R&D tax firm has claimed many companies are still not aware of the tax relief available or are significantly under-claiming and has urged the Chancellor to do more to support research and development in the November Budget.

The latest figures reveal that so far there have been 39,960 R&D tax credit claims for 2016-17, up significantly from 26,255 in 2015-16 as reported in September last year, with the total amount of relief claimed rising to £3.5bn, an increase of £575m from the previous year. This is based on partial data for the year and expected to increase as more returns are received.

The number of SME claims has also soared, with 34,060 making a claim in 2016-17 compared to just 15,585 three years earlier. The tax authority puts this increase down to the changes made to the SME scheme from April 2012 onwards. The removal of the requirement for a minimum R&D expenditure of £10,000 has meant that more companies are eligible to apply for the relief.

There have also been increases in the SME enhanced expenditure rate, including a rise from 125% to 130% in 2015-16. These changes, together with an increase in the SME payable tax credit rate from 11% in 2012-13 to 14.5% in 2014-15, have made the scheme more attractive.

HMRC also updated the figures to include the number of retrospective claims made after the filing deadline but before the two-year claim window closes. This highlights the significant number of claims being made after the filing deadline: 13,705 in 2015-16, 90% of which were by SMEs.

R&D tax stats

Sector and region concentrations

The greatest volume of claims continued to come from just three sectors: manufacturing; professional, scientific and technical; and information and communication. These accounted for 71% of all claims and 75% of the total amount claimed.

The finance and insurance sectors still lag behind, with 500 companies claiming just £35m of the £3.7bn total awarded.

Regionally, companies making claims are concentrated in the south east, with 45% of all claims and 60% of the total amount claimed for 2016-17 headquartered in London, the south east and the east of England.

Key driver in the UK economy

Commenting on the figures Luke Hamm, CEO of Innovation tax specialist GovGrant, called them good news for the UK economy, but sounded a note of caution.

“Whilst the volume has increased rapidly, as most claims are now relatively small the government needs to consider if the support is enough to truly stimulate innovation as a key driver in the UK economy.”

The average claim to date is £53,000, and 75% of claims made are under £50,000

“Too many businesses still don't know what they're entitled to so there's a need for much more education,” continued Hamm. “With Brexit on the Horizon, it is imperative that household names globally recognise the UK as a destination of choice for innovation.”

Patent Box figures

Figures were also released for Patent Box - the scheme enabling companies to apply a lower rate of corporation tax to profits from their patented inventions and intellectual property. They showed a 16% increase in companies claiming for the first time, but an 11.6% drop in the total number of claims.

The statistics also showed a significant distortion in the size of company which benefits from the Patent Box scheme. SMEs only benefited by £42m, a relatively small proportion of the total claimed (£945m), with 96% of total relief claimed going to large companies.

According to GovGrant’s Luke Hamm, the economic payback from innovation means the Chancellor needs to do more to champion small business innovation in the November Budget.

“The government’s industrial strategy has its heart in the right place, but it’s still unambitious,” said Hamm. “Ministers need more imagination and drive. Aiming for 2.4% of UK GDP invested in R&D by 2027 is mediocre. We need to add greater support to the SMEs particularly when it comes to benefiting from their inventions and intellectual property.

“The UK is good at inventing things but not so good at supporting them. I’d like the government to do more to support SMEs and their Intellectual Property.”

According to Hamm, it is also concerning to see that the information and communication sector accounts for only 10% of the total claimed. “This doesn’t align to the UK’s strategy to focus on a data-driven society,” he said.

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