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 2020-2021 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 well over £40bn in tax relief over this period.
UK businesses can claim tax credits for R&D projects that involved challenges of a technological or scientific nature that were difficult to overcome.
The work doesn’t have 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 relief claims continue to dominate for Wales, making up almost 90% of total claims.
According to new data released by HM Revenue and Customs (HMRC), the total value of SME relief claims for R&D tax credits in Wales is £105million. This has decreased from the 2019-2020 tax year, a downward trend that is mirrored in the number of SME relief claims submitted.
The average claim value for an SME stands at £43,478, a lower claim value compared to £53,663 national average.
What do these statistics mean for the Welsh economy?
Finance to boost the Welsh economy
£105m 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.
First set of R&D statistics tainted by impact of COVID-19
This latest report is the first that contains data taken from a tax year that was disrupted by COVID. The impact that COVID had on company research and development is made clear in the reduction of the number and total value of SME claims. The uncertainty of the business landscape forced many business plans to change, resulting in postponement of research and development projects. The furlough scheme may have created gaps in knowledge and expertise within the company for a substantial period of time.
Matthew Jones, founder and managing director at LimestoneGrey, commented,
“Wales has a fantastic business eco-system with a blend of traditional manufacturing industry through to renewable energy and fintech, all of which require R&D activity not only be competitive but to survive. COVID-19, as suspected, has had a negative impact on the figures for 2020-2021, with companies needing to comply with social distancing rules and other COVID-19 restrictions, R&D projects may have needed to be postponed or even cancelled. The furlough scheme will have impacted the amount of staffing costs a company could have included in a claim, reducing their overall claim value.”
Wales outperformed by other UK regions
Figures show that businesses in Wales are being out-performed by those in other parts of the UK when it comes to claiming tax back for R&D work. Wales only accounts for 3% of UK SME claims. Despite this, Wales enjoys a high average SME claim value compared to some parts of the UK, even though it is lower than the national average.
How to claim R&D tax credits
Matthew Jones commented further,
“Investing in research and development activities is great for business and for the economy and R&D tax credits can reward you for doing so.”
“My advice is to speak to a chartered tax advisor specialising in R&D tax credits. They will be able to discuss your recent projects and help you identify the pockets of R&D, along with the costs associated with it. Fully optimising your claim is extremely important when claiming R&D tax credits. You do not want to put in the 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. This is not as easy as it sounds, your advisor needs to be experienced to spot those hidden costs that may not be obvious.”
