Every year, HMRC releases a number of statistics in a report on the recent R&D tax relief claims.
These statistics provide a deep dive into the state of R&D tax relief in the UK. In more practical terms, they provide information on:
- The number of businesses making R&D relief claims
- What businesses are claiming for and how much
- The type and location of businesses making R&D relief claims
Gaining a clearer understanding of how the R&D tax credit scheme is being used can help HMRC understand what may be holding innovative businesses back from making a claim. After all, HMRC wants to reward businesses that work on R&D projects because innovation is good for the economy.
We’ve spent some time poring over HMRC’s latest statistics – here are five things from the report that we found particularly interesting (and we think you might, too) …
Overall, more businesses are making use of the R&D tax relief incentive.
We were thrilled to see this: R&D tax relief is a brilliant incentive that rewards businesses for innovative risk-taking.
According to the report, in 2017-18 the total number of claims for R&D tax credits rose to 62,095, an increase of 17% from the 2016-17.
The report shows a significant increase in the number of first-time applicants: 15,750, which is an increase of 10% from the previous year. In our experience, once a business has made a successful R&D tax relief claim, they generally tend to repeat the process for future projects so we hope that these new applicants will be inspired to continue claiming where possible.
The amount of R&D tax relief claimed increased in the last tax year.
The total amount of R&D support claimed increased to £5.1bn in 2017-18, an increase of 15% from the previous year.
However, this is in line with an increase in the total qualifying expenditure on R&D. Not all R&D spend ‘qualifies’ for the tax relief incentive. The total value of qualifying R&D expenditure against which claims were made was £36.5bn in 2017-18. This is an increase of 8% from the previous year.
Newer companies make the most R&D claims.
The report shows that the largest number of claims (23%) came from companies between 0-5 years old. Conversely, the smallest number of claims (5%) came from companies 25-30 years old.
This may be because the companies are not aware of the R&D tax credit scheme, or they may feel that their work doesn’t qualify as R&D. If you are curious about the eligibility of your projects, please feel free to get in touch!
Businesses in certain sectors are more likely to claim R&D tax relief.
Although the R&D tax credit scheme is open to innovative businesses from any sector, certain industries claim a larger proportion of tax credit claims. The Manufacturing, Professional, Scientific and Technical, and IT sectors continued to have the greatest volume of claims, making up a total of 66% of claims and 71% of the total amount claimed for 2018-19.
At Hamilton Blake, we specialise in providing R&D tax relief for businesses in the architecture and engineering sectors. We know that there’s plenty of innovative R&D work taking place in these sectors and are pleased to see their sector (“Professional, Scientific and Technical”) in the top three for claims.
Obviously, we’re thrilled that plenty of businesses in manufacturing digital, and tech are making use of the R&D relief scheme. However, this perhaps indicates that businesses from other sectors should be encouraged to see if their projects make them eligible to claim.
R&D tax credits are an SME champion
Sometimes businesses think they’re ‘too small’ to use the R&D tax relief scheme, which couldn’t be further from the truth. This scheme really comes into its own when it’s supporting small businesses.
In fact, most R&D relief claims are made by small businesses. Of 59,265 R&D tax credit claims made in the last year, 54,005 were from small to medium sized businesses. This is an increase of 19% from the previous year. This increase in the number of SME R&D claims in recent years is likely due to changes in the scheme from April 2012. These amendments removed the minimum R&D expenditure of £10,000, removed the PAYE cap, and increased the SME enhanced expenditure rate, which made the scheme more attractive to businesses of this size.
We love to see the scheme being more widely used, especially among smaller businesses. We hope that these figures will continue to rise into the next financial year: check back in 2021 to find out!
Want to find out more about how your business could benefit from R&D tax relief? Get in touch with Hamilton Blake Consulting to arrange an informal chat.