Our dedicated Technology team can support your business locally, nationally, and internationally.
The case for UK growth through innovation is made clear in the latest R&D figures showing that the value of claims for relief has fallen.
29 September 2022
At a time when the new Government is striving to achieve trend UK growth of 2.5% through tax cuts and deregulation, the latest Research & Development (R&D) statistics from HM Revenue & Customs showing a reduction in the value of claims for relief possibly signifies companies are not investing enough in innovation and/or making sufficient claims.
Companies that spend money developing new products, processes or services; or enhancing existing ones, may be eligible for R&D tax relief.
The latest figures show a mixed picture, skewed most likely by the effects of the pandemic. Whilst the number of companies claiming relief actually went up, the value of the relief claimed fell.
For the year 2020/21, provisional estimates of the amount of total R&D tax relief claimed was £6.6 billion, a decrease of 4% from the previous year. This equates to £38.1 billion of R&D expenditure, a drop of 11% on the previous year.
However, 2020/21 also reveals that the provisional estimated total number of R&D tax credit claims was 89,300, an increase of 7% on the previous year, driven by a 7% rise in the number of R&D claims made under the SME scheme to 78,825
This indicates a 10% decrease in the average value of claims in 2020/21, most likely to have occurred because of COVID-19 restrictions preventing companies from carrying out their normal levels of R&D activity.
With restrictions now lifted, this may right itself going forwards, but it is nevertheless disquieting that full advantage is seemingly not being taken of this valuable tax relief.
For every £1 of qualifying expenditure identified you will enjoy a cashflow to the benefit of approximately 25p - 33p (SME regime). That’s at least 25% of your qualifying R&D expenditure funded by the government.
A claim can be made once the statutory accounts and corporation tax return have been finalised for the accounting period in question. Companies can currently claim for up to two years from the end of their most recent accounting period.
We have seen many companies come to us for advice only for us to discover an untapped pool of expenditure they have incurred on R&D for which a claim has not been made. We have in many cases been able to submit successful retrospective claims for relief.
When claims are broken down into UK regions, companies with registered offices in London dominate (21% of total claims and 31% of total amount claimed), and those in the South East (15% of total claims and 18% of total amount claimed). But it needs to be borne in mind that the location of the registered office does not necessarily mean that that is where the R&D activity is undertaken.
The South West and West Midlands come further down the pecking order of claims made, indicating potential for considerably more claims to be made in these regions.
The Information and Communication, Manufacturing, and Professional, Scientific and Technical sectors continued to have the greatest volume of claims, making up 62% of total claims and 70% of the total amount claimed for 2020/21, i.e.
Companies that invest in developing new products, processes or services; or enhancing existing ones, may be eligible for R&D tax relief.
The benefit is realised via either a cash payment and/or a corporation tax reduction. You have up to two years from the end of your accounting period to submit your claim.
There are many common myths about claiming R&D relief which put companies off from claiming. Our report deals with these issues and provides case studies of companies for whom we have made successful claims.
You can download it here: R&D Tax Credits.
Also, check out our guidance: Accessing R&D funding
There are some important changes ahead which may impact on your claim, as covered in our article: Upcoming R&D Tax Relief Changes
Future limitations on R&D relief in relation to overseas workers and a new requirement to give HMRC advance notification of making a claim will adversely impact on the ability to claim the relief.
It is to be hoped that the new Chancellor's ambitious growth targets lead to a more favourable landscape for claims in the near future.
If you want to find out more about R&D Tax Relief and how this can benefit your business, head to our R&D KnowledgeHub or contact a member of our R&D team.
We'll send you relevant insight, events and analysis from our technical, sector and service teams - straight to your inbox.
