Rise in claims for R&D tax credits amongst SMEs

The latest uptake statistics for R&D tax credits and Patent Box were released by HMRC earlier this week. Here are some of the key takeaways.

R&D Tax Credits

Here are the topline small to medium-enterprise statistics from the latest HMRC report that you need to know.

The latest complete data set is for 2017 – 18, which we’ve compared against 2016 – 17 for year-on-year purposes.

Click to enlarge

What’s changed

The total number of claims received for R&D tax credits across 2017-18 was 62,095, against R&D expenditure of £36.5bn.

Year on year, this is a 17% increase in claims and an 8% increase in the value of expenditure being claimed against.

“It’s an encouraging sign, showing not only an increased awareness of the help available, but a steady focus on research and development across businesses of all sizes.”
Stuart Alman – Head of Business Planning, MPA

Small to medium-sized enterprises

Awareness in the scheme has grown amongst SMEs in the last few years, and a number of changes to eligibility criteria and relief rates have opened it up to more companies, and made the scheme more attractive.

The overall increase in claims has primarily been driven by a rise in those by SMEs; 19% up to 54,005.

New claims

There were 15,750 first time applicants for R&D tax credits in 2017 – 18, an increase of 10% from the previous year. The number of first-time applications in the SME scheme increased 13%, from 12,350 in 2016 – 17 to 13,935 in 2017-18.

“This highlights that the business advice available to SMEs is improving and that companies are looking at all sources of funding and effective tax planning, which will be even more prevalent in these current times.”
Stuart Alman – Head of Business Planning, MPA

RDEC

There has also been a substantial rise in claims from SMEs working for large companies as sub-contractors or receiving related subsidies through the RDEC scheme – a 15% increase from 2016-17 to 2017-18.

Payable credit claims

This year (2018 – 2019) so far has seen strong growth in the number of payable credit claims, with 43% of SME claims including a payable tax credit element.

“The fact the scheme can create a cash payment for SMEs again highlights why the scheme is so beneficial teamed with the importance of claiming correctly.”
Stuart Alman – Head of Business Planning, MPA

Patent Box

According to 2017 – 2018 figures, 1,305 companies claimed relief of £1,101m under Patent Box.

Source: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921792/2020_Patent_Box_Publication_-_accessible.pdf

Though the number of companies claiming has grown by 11%, large companies are receiving 92% of the amount of relief claimed from just 28% of total claims.

The average claim for large companies is £2.77m while for SMEs it’s just £80k. Still, many more smaller businesses could likely be taking advantage of this scheme. If you’re looking to apply for either Patent Box or R&D tax relief, why not speak to one of our experts to understand exactly what might be available to you.

“The data shows that there is a lack of awareness and understanding of Patent Box. From our research of this area there are a high number of companies with valid Patents that are not claiming. The reason for looking at Patents may not be just for the protection of your IP; it could be for tax reasons too.”
Stuart Alman – Head of Business Planning, MPA

Sectors

Source: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/921817/Research_and_Development_Tax_Credits_Statistics_September_2020_accessible.pdf

Manufacturing dominates in terms of number of claims being filed for both R&D tax credits and Patent Box. While this isn’t necessarily surprising since many companies who manufacture are inherently required to undertake research and development in response to rapidly changing technology, practices, standards, customer requirements and competition, the value of the claims filed by this sector is.

For 2017 – 18, there were 15,110 claims from the manufacturing sector for R&D tax relief, for an average claim value of just £97,948. In comparison, the finance and insurance sector had an average claim value of £224,138 against just 1,160 claims.

The same goes for the construction, information and communication, and professional, scientific and technical sectors. Between them and including manufacturing they’re consistently in the top three of sectors claiming by volume, but not by claim value.

“This is what we would expect to see, especially with Patent Box, as the Manufacturing sector has a higher of number of Patents than many of the other sectors included in the report. The top three sectors claiming by volume will include many specialist smaller companies actively involved in R&D, where as some of the sectors with higher average claims, are not as likely to have such a high number of small companies in the sector undertaking R&D.”
Stuart Alman – Head of Business Planning, MPA

What does this mean?

Claiming for tax relief can be complicated and time-intensive. Without the right knowledge of what you can claim against and a company-wide overview of activities being undertaken, it’s difficult to ensure the maximum amount of relief is being sought. On top of that, claims can be filed incorrectly, and we know many businesses are put off by the process alone.

That’s where we come in. We’ve helped over 2,000 businesses access R&D tax credits, and specialise in working with innovative UK companies to unlock funding for great work.

We have a quick estimate calculator to help you see what you might be eligible to claim here, and have a team of expert advisors ready to guide you through the process to ensure you get maximum relief. Just leave your details below and we’ll get in touch.

 

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Stuart Alman
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Stuart Alman Head of Business Planning