What is the R&D Tax Credit Statistic Report?
HM Revenue and Customs (HMRC) have released their latest Research and Development (R&D) Tax Credits Statistics Report; sharing data for accounting periods ending during the 2019-20 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.
So what do these statistics mean to companies in Wales? LimestoneGrey has analysed the data to uncover the key R&D tax credit trends, assessing to what extent Welsh companies are utilising this valuable government incentive.
R&D Tax Credit Statistics: Background
Since its inception in 2000, the number of R&D tax credit claims submitted to HMRC has comfortably surpassed 300,000 with companies successfully recovering over £40bn in tax relief over this period.
UK businesses can claim tax credits for R&D projects that involved trying to overcome challenges of a technological or scientific nature, where the company were uncertain how those challenges could be overcome.
The work doesn’t need to have a successful outcome, and the tax credits cover a variety of costs, including staff, materials and software, that were directly related to the project. Companies can claim a reduction in their tax or, if they have no tax liability, receive a cash payment.
R&D Tax Credit Statistics: The Key Facts for Wales
SMEs are the lifeblood of the Welsh economy, and this is replicated in the statistics. SME claims continue to dominate for Wales, making up an impressive 90% of total claims.
According to new data released by HM Revenue and Customs (HMRC), the total value of SME claims for R&D tax credits in Wales jumped from £90m in the 2018-19 tax year to £125m in 2019-20, a rise of 38.8%.
The number of SME claims also increased from 1,795 to 2,655 over the same period, a large rise of 47.9%, therefore slightly reducing the average SME claim to £47,081, still a very respectable sum of money.
What do these statistics mean for the Welsh economy?
Finance to boost the Welsh economy
£125m of tax-free funding being distributed to Welsh SME businesses can only be seen as having a positive impact on our economy. A proportion of this money will undoubtedly have been used to accelerate future research and development project and expand workforces.
Those that are claiming R&D tax credits are investing heavily in R&D
Despite the slight decrease in Wales’ SME average claim value it has the sixth highest SME average claim value amongst all UK regions. This suggests that Welsh companies are ensuring that investing in research and development becomes a priority.
Matthew Jones, managing director at LimestoneGrey, commented:
‘Investing in research and development activities is great for business and for the economy. Fully optimising your claim is extremely important when claiming R&D tax credits. You do not want to put time and effort in preparing a claim, only to have essential money left on the table. It is imperative that your R&D tax credit advisor identifies every cost associated with your qualifying projects to ensure you receive the entire benefit that you are entitled to. This is not as easy as it sounds, your advisor needs to be qualified and experienced to spot those hidden costs that may not be obvious.’
Companies are clearly still missing out
It’s not all good news though. Despite the high number of limited companies registered in Wales and the ever-growing cluster of fintech and technology companies, only 2,655 SME claims were submitted, representing a tiny fraction of Welsh limited companies. There could be a number of reasons for this, but one might be confusion about whether their businesses will qualify for R&D tax credits.
Although the research has to be of a scientific or technological nature, this doesn’t mean companies have to be working in a science or technology field to qualify for tax credits. The HMRC figures show claims accepted from businesses in a wide range of sectors including agriculture, mining, construction, fishing and transport to name but a few.
Matthew Jones further commented
‘It is fantastic to see that Welsh companies are taking advantage of the relief, whether they are a first-time applicant or a business continually investing in R&D. However, there are still companies out there that are missing out on a benefit that they are entitled to. I would also encourage companies who are new to R&D tax credits to speak to a qualified, experienced advisor about their eligibility.
This report includes data up until March 2020. This is the last point before we start to see the how COVID-19 has disrupted companies’ research and development efforts or indeed how furlough will potentially have a negative impact on the size of their benefit.’
Notes: Due to the nature of the scheme, returns for the latest financial year reported (2019-20) can still be submitted past the cut-off date for the publication. As a result, data for 2019-20 is not yet complete. To avoid misleading comparisons between years, the 2018-19 figures have been taken directly from the previous 2020 HMRC statistics report to make a truer comparison.