Research and Development (“R&D”) Tax Relief is well known to many. Available to companies the relief provides an additional reduction in taxable profits, for companies who attempt to resolve “technological and scientific uncertainty”. The most widely-known form of the relief is that available to SMEs, where for every £1 spent on R&D, the company can obtain a deduction against taxable profits of £2.30.
HMRC has just released their national R&D tax credit statistics, providing information on the nature of the companies claiming them and the amount of tax credits claimed in 2016/17, the most recent year for which HMRC has information available
SME claims rise
There was a 22% increase in the number of SME claims made when compared against the previous year. 2016-17 saw 45,045 SME claims made for R&D Tax Relief. There was also an increase in the total amount of relief claimed, up 14% to £4,4 billion.
No sector surprises
As might be expected, companies in the manufacturing, professional, scientific and technical, and information and communication sectors dominated the pattern of claims. Together those sectors made up 68% of the claims and 73% of the total claimed for those filed to date in 2017/18.
Manufacturing had the highest percentage of claims with 25%, followed closely by Information and Communication (24%) and Professional, Scientific and Technical (20%).
I have long held the view that every company in the manufacturing sector will have some R&D every year. The relief is essentially given for trying to solve problems. I’m sure that all manufacturers encounter some form of problem every year.
Manufacturers shouldn’t be put off by HMRC’s phrase “technological and scientific uncertainty”. You don’t have to be a Nobel Prize winner to have an eligible claim. All that needs to be demonstrated is that the company encountered some sort of problem, in its manufacturing process, for example, and there was an attempt by the team to solve it using ingenuity and experience.
On the face of it, the North East performed poorly when it comes to claiming R&D Tax Relief. 2016/17 saw the region make only 1,485 SME claims with £65m of Corporation Tax saved by those claims. Only Wales and Northern Ireland made fewer claims in the period.
However, when compared to the number of SMEs in the region, the picture is encouraging. According to the Office for National Statistics, there are approximately 47,000 SMEs in the region. So, broadly speaking 1 in every 30 SME companies in the region makes an R&D Tax relief claim. This compares well with the North West (1 in 40) and Yorkshire and the Humber (1 in 42). Even the “economic powerhouse” that is the South East only saw 1 in every 47 companies make a claim.
Its encouraging to see that innovation continues to be a key feature of North East economic activity and that the ability to claim tax relief for the application of ingenuity is a message that is cutting through. R&D Tax relief has been with us for almost 20 years. Some relaxation in the criteria attached to the relief earlier this decade has seen a rapid growth in claims but there is still so much still to do and many companies who need to be made aware of the relief. If you haven’t investigated this valuable tax relief, please do so now!