HMRC have released their latest Research and Development (R&D) Tax Credits Statistics Report; sharing data for accounting periods ending during the 2016-17 tax year. The report, published each year, provides valuable information on the number of UK companies benefiting from the relief and the value of the cash benefits secured.
Displaying a few notable trends, we at Lime R&D analysed the data, assessing to what extent companies are utilising this government incentive.
Since its inception in 2000, over 240,000 R&D tax credit claims have been submitted to HMRC with companies successfully recovering over £21.4bn in tax relief over this period.
Previous R&D statistics reports have shown that, year on year, more and more companies are becoming aware of the relief and are securing valuable financial benefits for their companies. You will not be surprised to hear that this year’s report is no exception.
Once again, there has been a huge increase in the number of companies taking advantage of the relief. HM Revenue and Customs statistics for the 2016-17 tax year show that, across the UK, there have so far been 39,060 R&D tax credit claims, with UK companies successfully claiming back £3.5bn in tax relief. Indeed, these figures are likely to rise over the next few months, as it is still possible for companies to submit a claim for this period. The comparative figure for the 2015-16 tax year, as reported in the 2017 statistics report, showed 26,255 claims in total, providing £2.9bn in tax relief.
SME claims still account for the largest proportion of all claims. Out of the 39,960 claims, 34,060 were SME claims, representing over 85% of all claims. This is not surprising, as the UK economy is dominated by SME companies, and the SME relief is significantly more generous than the large company scheme providing up to 33.3p for every £1 of R&D spend compared to 10p for every £1.
The average value of an SME claim stands at circa £53,000 which is down on the circa £60,000 value per the same statistic on last year’s report. This is not necessarily a bad thing, it just goes to show that smaller companies are now becoming aware of the relief available to them and taking their opportunity to claim, which is pulling down the average. The average value of a large company claim stands at circa £270,000 which compares to circa £340,000 per last year’s comparative figure. Again, we do not feel that this is a negative. It is likely a result of ‘smaller’ large companies making claims as well as SME companies realising that they can still make an R&D tax credit claim using the large company relief if they have received grant funding or have been paid to do R&D on someone else’s behalf.
Sadly, there still remains a significant overconcentration of claims for companies based in London and the South East (45% of all claims and 60% of the total amount claimed). This is likely the result of these companies having easier access to R&D tax credit specialist advice.
In terms of the sectors claiming the most relief, this remains unchanged with ‘Manufacturing’, ‘Professional, Scientific and Technical’ and ‘Information and Communication’ sectors dominating, making up over 71% of claims and 75% of the total amount claimed so far for 2016-17. However, it is great to see that other sectors are taking advantage of the relief with ‘Agriculture, fishing and forestry’, ‘Mining and quarrying’, ‘Water, sewerage and waste’, ‘Construction’ and ‘Admin and support services’ making successful claims. This demonstrates how wide HMRC’s definition of R&D is and that qualifying R&D projects can be found in so many industry sectors, which most would not expect to see R&D taking place.
The Welsh Perspective
Wales has seen a large increase in the number of claims submitted, up from 825 to 1,245, an increase of over 50%, with the amount of tax relief claimed by Welsh businesses increasing by £5m to £70m. This is a fantastic result; however the numbers are still painfully low when compared to the rest of the UK. While it is great to see Welsh companies benefiting from this relief, when looking at the number of claims against the number of businesses likely to qualify in Wales, it is evident many are missing out. This may be due to the misconceptions surrounding such schemes. Here at Lime R&D, we have found that the majority of Welsh businesses are either not aware of R&D Tax Credits or wrongly do not believe they qualify.
Can my business claim for R&D Taxes?
More companies qualify for this valuable corporation tax relief that most tend to believe. It is widely accepted that the majority of eligible companies do not claim. As a result, UK businesses literally miss out on billions of pounds in additional funding each year.
To qualify for the relief, you essentially need to demonstrate that the company has a project which involved uncertainty. A project can be creating new, improving existing or copying a rival’s product, process, service, software or device. Uncertainty is present if you could not say with certainty from the outset that the project could be achieved.
An SME can receive up to 33p for every £1 spent on R&D activities, while a large company can claim 10p for every £1. Costs which qualify for the relief include wages, agency workers, subcontractors, consumable items & materials, and software.
Lime R&D, Wales’ R&D tax specialists
Lime R&D are Specialist Chartered Tax Advisors. We specialise solely in the niche area of R&D Tax Credits and have a deep understanding and a wealth of experience in securing R&D tax relief for our clients. we work hard to inform Welsh businesses of their entitlements. So, if you want to discuss R&D Tax matters, call us today.
2018 R&D Tax Credit Statistics Report: https://www.gov.uk/government/statistics/corporate-tax-research-and-development-tax-credit