Five Key Takeaways From the Government R&D Tax Statistics

October 6, 2021

by Dominic Bonham 

Construction in Focus – How the Construction Claims Break Down

Overall there will be an estimated 5,995 R&D claims made by construction companies for the 2020 period. In total, the government paid out £400 million for construction companies, which makes the average claim size for construction firms a touch under £68,000. The majority of these claims, around 94%, were for SME construction firms with under 500 staff. Unsurprisingly these claims tended to be significantly smaller (despite the large company scheme being less generous) than for large companies. The average claim for an SME was just under £54,000 whereas large companies claimed an average of £315,000.

Construction Claims Remain Steady Overall

The 7% of the total number of claims under the R&D Tax Credit Scheme were in the construction sector, the exact same proportion of claims as the previous year, with a minor dip in the proportion of money given out under the scheme relative to all other sectors. 5% of the overall pay-outs under the scheme went to construction firms as opposed to 6% the year previous.

Has the North Levelled Up or Levelled Down?

In terms of achieving the Conservative Government pledge of levelling the playing field, the UK still has a long way to go. The North makes up for only 21% of total R&D claims, compared to the South’s 52%. Meanwhile, the Midlands, Scotland, Wales and Northern Ireland make up a combined 27%. Clearly, the South remains the principal region punching above its economic weight, and the Conservatives need to do more to address the imbalance of R&D investment and the related benefits that this brings to the regions.

The Number of First Time Applicants Taking Advantage of the Scheme Continues to Rise

The 2018/2019 accounting period represented a 25% increase in new applicants compared to previous years, with 19,490 new applicants in comparison with the prior years 15,895. For 2020 the figure is currently 10,100. However the fact that companies will still be able to claim for the 2020 period up until at the latest December 2021 means that this figure is bound to increase as the year goes on, and no reasonable inferences can be taken from it yet.

Has The Government Goal of 2.4% of GDP being invested in R&D Been Hit Six Years Ahead of Time?

According to the latest detailed Government Figure release, the total expenditure used to claim R&D Tax Credits came to just under 47.5 billion pounds, given that the overall UK GDP for 2020 was 1.96 trillion this means that the overall R&D relevant spend accounts for 2.42% of GDP if measured by this metric.

In reality, this is a slightly imprecise mechanism that isn’t the one that the Office for National Statistics and other government departments use. This is no doubt due to the fact that the R&D Scheme also allows for indirect qualifying expenditure to be taken into account when making claims, which isn’t included in the government’s other calculations. Nevertheless, the combination of an increase in recorded R&D Expenditure and a decrease in GDP means that we’re guaranteed to have at least a temporary substantial increase in proportionate R&D spend. Whether this will continue as companies potentially scale back operations and R&I investments in response to covid hardships remains to be seen.

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