The Government has recently released its annual Research and Development Tax Credits Statistics report looking at R&D tax relief claims for 2016/17 and interim figures for 2017/18.
The 52,335 claims made for 2016/17 tax year resulted in £4.4bn of relief being paid out in respect of qualifying expenditure of £32.86bn. The report showed the total number of claims was up 20% on the previous year and the total amount of R&D support increased by 14%. This is an indication of the growing awareness around how the relief can be applied and, from our experience, how businesses are structuring their activities to maximise claims.
The interim figures for 2017/18 show the 48,635 claims submitted have already netted £4.3bn for UK companies engaged in R&D. With the window to submit claims for this period still very much open, I think we are likely to see further year on year increases with the potential for numbers of claims to exceed 60,000.
One thing that is certain is that more companies than ever before are claiming R&D relief. Part of this may be to do with increased generosity of the scheme in recent years. The removal of the minimum £10,000 expenditure requirement and the PAYE cap, together with the increase of the enhanced rate from 125% to 130%, has made the relief too good to miss. The other factor is that R&D, as a concept, is finally gaining some traction in the minds of company owners.
That said, the CBI reported in September that “at the current pace of investment, the UK will miss its 2.4% R&D target by £19bn in 2027”. So why is this and how do we reconcile the relatively pleasing stats with such a gloomy forecast?
It can’t be denied that the largest proportion of claims (in number and value) continue to come from London and the south east. Whilst some of this may be because a number of companies around the UK are keen on having their registered office in London, the fact remains that the larger companies gravitate to the capital. One of the most telling statistics is that, for 2016/17 nearly £1.5bn was paid out on just 215 claims, each for over £2m (of which £1.3bn related to 180 claims under the RDEC scheme for larger companies).
All of this suggests that, although the number of SME claims increased by 22%, owner managed, SMEs are still not claiming at the level they could and should be. So what is to be done to bridge the gap?
The CBI suggests extending the tax credit to include:
- capital expenditure;
- data driven innovation;
- outsourcing of R&D activities, where this is not already captured; and
- upskilling and retraining of staff.
Others have suggested increases in uplift percentages or relaxation of certain SME scheme limits.
On balance, it’s unlikely that any of the above will happen any time soon, if ever.
Our job, in the meantime, is to continue to get the message out to company owners and managers that R&D tax relief can apply to their businesses.
If you think that your company may be eligible to claim R&D tax credits, contact us now for a free, no-obligation discussion.
Want to know more? Call us on 01432 273189 or email email@example.com