Written by Thomas Nicolson
Last weeks statistics, released by HMRC, shows us that more UK businesses than ever are claiming R&D Tax Relief.
This report estimates that over 85,000 businesses claimed £7.4bn for the tax year ending March 2020, in corporation tax liability reduction or a cash credit equivalent, which is a significant rise from the previous period. It also shows that R&D expenditure has more than doubled in the past five years, and so, the UK is closing in on its R&D GDP percentage spend target by 2027 set out in 2017 by the Prime Minister at the time, Theresa May.
It was recognised that the UK had fallen behind many of its neighbouring countries in terms of productivity levels with May citing that “too frequently fast-growing firms can’t get the patient long-term capital investment they require”.
Now, in the context of the recent global pandemic and today’s economic climate, the government has placed significant emphasis on R&D to bounce the UK out of the pandemic. They say: “In light of the COVID-19 crisis, research and development will be critical to economic and social recovery from the impacts of COVID-19, enabling us to build a greener, healthier and more resilient UK.”
The policies surrounding R&D go much further than technology developments with the government wanting “to build a future which is greener, fairer, healthier, more resilient, and more innovative than ever before”. It cited that research and innovation “will be critically important to achieving this, through creating new ideas and new technologies and applying them”. The government paper showed continuous improvement and supporting productivity, generating a better understanding of people and communities, supporting exciting new careers and vibrant new businesses, and helping to improve public services.
The most recent set of statistics support this approach suggested that there is a concentration in the number of claims in the Information and Communication (22%), Manufacturing (22%) and Professional, Scientific and Technical (19%) sectors, accounting for 20%, 25% and 24% of the total amount claimed, respectively.
Despite efforts to ensure regional imbalances are not created by the R&D Credit the statistics show a concentration of claims by companies in London and the South East making up nearly half of the benefit amount claimed. The East of England has the third largest amount claimed with 11% of the total, but is the fourth largest region based on the number of claims. The North West has the third largest number of claims, but is the fifth largest region based on the amount claimed.
Despite these positive statistics the UK is still well behind a myriad of countries that have their own versions of an R&D tax scheme a higher portion of GDP spend. There are around 30 countries with active “R&D intensity targets” which include China, South Korea and Germany – all of which are already outspending the UK in research & development related projects.
Nevertheless the continued increase in domestic R&D investment shows that Britain is heading in the right direction.