• Damon Butcher

The Majority of R&D Tax Credits are Claimed by Companies With No Profit

This blog is written to give further context to the R&D scheme with a brief overview of some more interesting statistics behind it. The statistics are from the National statistics by HMRC. For more information on the R&D scheme, how it works, and how to apply, we have another blog based around this here.





Contents


· Disclaimer

· Main Points

· Number of Claims

· Amount Claimed

· Total Expenditure

· Regional Analysis

· Other Information


Disclaimer

­Before anything else, it is worth noting that the majority of these figures are estimates. The HMRC gives a provisional estimate first, as many companies may not have claimed yet, or may still be in the process of claiming, and are accounted for in these statistics. That being said, the full statistics will be released.


Main Points


  • Number of claims increased 16% - This is mainly due to SMEs, as SME claims also increased 16%.

  • In the year ending March 2020, tax relief went up 19% to £7.4b.

  • £47.5b was spent on R&D, and increase of 15%.

  • 20% of R&D claims were from London based companies, with 31% of the total £7.4b claimed by these companies.

  • Information and communications, manufacturing, and professional, sciences, and technology held the majority of claims, at 64% of the total claims, claiming for 69% of the total.

  • The next statistics report will be in August 2022.


We see a large influx in claims over the past year. While there will be cases where the same companies are claiming for different projects relating to R&D, we can estimate that there is also an amount of new companies claiming with this scheme. This could be due to the knowledge of both the existence of the scheme, as well as an increase in the number of companies that deal with this scheme, increasing.


Number of Claims


  • An estimated 85,900 claims were made, an increase of 16% over the last period.

  • 76,225 of these were SME claims, and 9675 RDEC.

  • This gives a total of 88.7% claims being SME claims.

  • Of these claims, 38,050 were purely for Corporation Tax, CT, liability.

  • 38,175 were for a payable tax credit. This gives roughly 50% for each.

  • Regarding RDEC claims, 4,370 were made by large companies.

  • 5,305 were made by SMEs that were subcontracted.


What we see here is that there is seemingly a much larger case for SMEs to claim under the R&D tax relief scheme. We can also see that around half of the SMEs that do qualify and claim are not profitable, and are thus given the payable tax credit, so there is no need to worry about the end result. We can infer that the innovation, or attempt thereof, is the important aspect of the scheme.


Amount Claimed


  • £7.4b has been claimed as either a tax relief or payable tax credit, an increase of 19% from £6.3b.

  • £.4.4b was claimed through the SME scheme.

  • £3.1b was claimed through thje RDEC scheme.

  • Within this £3.2b, £2.7b was claimed by large companies, with the remaining £375m claimed by SMEs under the RDEC scheme.

  • The total amount claimed under the SME scheme increased 25%.

  • The total amount claimed under the RDEC scheme increased 11%.


These statistics show that not only do we have an increase in the number of claims, but also that there is an even larger percentage increase to the amount claimed back. This shows both that the scheme is becoming more and more effective, as well as an increase in the sheer amount of expenditure on R&D. The fact that more SMEs are claiming will also have an effect on this, as they are given a larger percentage back through the SME scheme than companies that go through the RDEC scheme.


Total Expenditure


  • 67% of all R&D expenditure comes from companies claiming under the RDEC scheme.

  • SME expenditure has increased 22%, with a 15% increase to SMEs claiming RDEC.

  • Expenditure by large companies has increased 11%.


There is a large increase in the expenditure for R&D within SMEs. This shows that more and more SMEs are claiming through the scheme with qualifying R&D. With the surge of new companies claiming for these, companies such as Inovasi become essential for these claims. Inovasi and others can help by giving necessary information about what is and isn’t R&D and give a rough estimate to how much can be saved.


Regional Analysis


  • 20% of all claims came from companies based in London.

  • London based companies claimed 31% of the total amount.

  • The South East had the second largest number of claims at 15%, with 18% of the total amount claimed.

  • The East of England was the third with 11% of the number of claims.


Analysing this, we can see that London and the surrounding areas tend to have more business. The proportions have changed very little over the years and remains fairly constant. While it is important to note that the location of the company doesn’t matter in whether you can claim for R&D tax credits, it is noteworthy that it appears there are more companies doing innovation within London and the surrounding areas.


Other Information

  • Manufacturing, information and communications, professional, sciences, and technology lead in claims by number and amount granted by a large margin.

  • Public admin, defence, and social services falls at the bottom.

  • First time SME applicants increased 25% to 17,495.

  • First time RDEC applicants increased 7% to 2000.

  • The most claims fall within the bands below £5k and between £50 and £100k.


Significant data falls in the last line: the average claim. This shows that the claims are both for small and large companies alike, and the claims will not be affected necessarily by how much they are for, with both the smallest and one of the largest bands being most common.

There are several graphs that can be seen on the HMRC site here for more information. For a full reference of the statistics, see here. All statistics are accurate at the time of writing.


Making the claim can be arduous and difficult, and a wealth of knowledge of the HMRC is often necessary. Due to this, we recommend having a professional help with this. If you would like to become one of the many new companies claiming through the R&D tax relief scheme, see what Inovasi can help you with here.



Inovasi helps companies to innovate with innovation incentives: R&D, Tax Credits, The Patent Box Scheme, and Funding. Inovasi aims to save you time, so you can focus on the core of your business, we offer expert advice, you can rest easy knowing your claim has been strictly adhered to HMRC legislation, reducing the chance of an inquiry, maximise all aspects of your innovation process, experienced, up to date on the latest guidance and changes related to R&D.


For this reason, we would suggest using an R&D specialist. At Inovasi, we take the time to understand you and your business, taking all the heavy work away from you, and we can ensure a robust and compliant report will be sent to HMRC to support your claim. In the unlikely event of a random inquiry, we will act on your behalf and show to HMRC how the project and costs associated are indeed qualifying. A technical advisor can help you figure out what is and isn’t R&D under the scheme.


To find out more about the R&D scheme please visit www.inovasi.co.uk or get in touch with Inovasi at hello@inovasi.co.uk