It’s that time of year when we analyse this year’s R&D Tax Credits statistics, recently published by HMRC. Our aim is to give you some insights about the current state of the scheme and also some benchmarks that you can compare with their own R&D claim position.
We have mostly focused on 2017-18 because that is the most recent year where we have a complete set of figures. The 2018-19 numbers are expected to change as more claims are filed but we have included them in some places as they can still give us a decent idea of the current state of things.
The number of claims filed
In 2016-17 there were 53,015 R&D claims filed in the UK.
In 2017-18 there were 62,095 R&D claims filed – a 17% increase over the previous year.
In 2018-19 there were 59,265 claims filed but this is expected to rise well above the previous year. It’s still unclear whether the scheme’s growth has accelerated or slowed down over the past year, but we can see steady growth in the years leading up to that point.
In 2018-19 the scheme has already surpassed the £5.1 billion claimed in the previous year and this is expected to rise further once all the claims come in.
What this means for the R&D scheme
More companies than ever are benefitting from the R&D scheme. It follows that awareness of qualifying activities are higher than ever.
If the scheme succeeds in encouraging innovation in the UK, then we can speculate that the it will help speed up the economic recovery after the COVID–19 crisis – at least while the government continues to support it. Although some conflicts exist between the scheme and other COVID-related funding schemes (such as the CBIL), we have seen some anecdotal evidence that the crisis has compelled a significant number of companies to file an R&D claim in order to lessen the impact that COVID has had on their business.
We will also be keeping a close eye on the effects that the proposed PAYE cap will have on the scheme.
What this means for you
Although we have seen a trend that leans towards stricter review policies of R&D claims, It’s as good as time as ever to rely on the scheme to help fund innovative activities, providing that best practices are followed during the claims process.
It’s widely recognised that innovation is key to economic growth so the government’s support of the scheme is unlikely to change in the foreseeable future. The impact of COVID-19 is likely to be felt for years to come and the government will likely see the scheme as one tool to speed up economic recovery.
Sectors that are benefiting most from the scheme
Below are the sectors that claimed the highest amounts of R&D benefit in comparison to what they claimed the previous year.
- Construction: £220 million (51% increase)
- Water sewage and waste: £30 million (50% increase)
- Health & Social Work: £30 million (50% increase)
- Education: £50 million (42% increase)
These big shifts are likely the result of wider adoption of innovations such as emerging construction methods (e.g. modular construction), Low Impact Development (LID) techniques in civil engineering and the emerging impact of artificial intelligence and big data on EdTech and the medical field.
As has been the case in previous years, in 2017-18 the biggest beneficiaries of the R&D scheme were Manufacturing, Information & Communication and Professional, Scientific & Technical sector categories. They claimed £1.48 billion, £960 million and £1.2 billion respectively.
Figure 1: Average annual R&D claim values by sector
Regions that are benefiting most from the scheme
In 2017-18, London and the Southeast continued to claim the lion’s share of R&D Tax Credits by claiming a total of £2.38 billion. All of the other regions combined claimed a total of £2.75 billion. The West Midlands, Wales and Northern Ireland saw the biggest increases in the amount claimed (30%, 27% and 26% respectively).
Figure 2: Average R&D claim values by region
Other notable figures
In 2017-18, companies claimed £2.76 billion through the SME scheme and £2.38 billion through the RDEC and Large Company schemes.
Of the 62,095 claims filed, 54,005 were SME claims. In the same year, 15,750 companies filed an R&D claim for the first time. This is a 10.4 % increase over the previous year.
Lastly, UK companies spent a total of £36.5 billion on activities that met the criteria of the scheme and enabled them to claim.
The uptake of the R&D scheme is not shown any signs of slowing down which suggests that there are still a significant portion of companies that are able to claim but are not claiming . The construction industry has surged forward in the amount of benefit claimed and the West Midlands, Yorkshire and Wales have seen the biggest growth in the amount they claimed in comparison to the previous year.
Lastly, following a t report by National Audit Office published earlier this year , we think there is a good chance that HMRC will begin to scrutinise claims more closely in a bid to target low-quality claims and control the costs of the scheme.
If you need any obligation-free advice on preparing your first claim or maximising the value of your next claim without risking an enquiry, contact us.