Michael Thornton

Written by: Mike Thornton

Mike Thornton

Partner, Head of Manufacturing

Should manufacturers think bigger when it comes to R&D tax relief claims?

  • October 2018
  • 3 minutes

It’s sometimes easier to identify innovation with a new product so it may not be surprising to hear that manufacturers made the most research and development (R&D) claims in 2016-17. The new statistics from HMRC also revealed a 40 per cent year-on-year rise in the number of claims for R&D tax credits from the sector, with the level of support provided rising by 15 per cent.

The latest data shows that UK manufacturers submitted 10,115 claims for R&D tax credits in 2016-17, up from 7,210 in 2015-16 reported in September last year. The total amount of R&D support claimed rose to £990m, an increase of £130m from the previous year. 

Manufacturers make up 27 per cent of the overall claims which is the most overall, closely followed by information and communication at 24 per cent. 

Which leads to an interesting point, as more manufacturers start to adapt to Industry 4.0 through adopting new technology and ways of working – then we could see even more claims in the future as traditional business models change. 

HMRC want to drive innovation to stimulate the economy so over time, the rate of R&D relief has become more generous and it is now worth up to 230 per cent for SMEs. This means that for each £100 of qualifying costs, the corporation tax paid by SMEs on income could be reduced by up to an additional £24.70 (applying 19 per cent UK corporation tax rate for FY18). 

In an interesting update to the statistics this year, HMRC has tracked back into recent years, to look at the number of claims made after the filing deadline, but before the two-year claim window closes. This shows that UK-wide, a significant number of claims are being made after the filing deadline (some 13,705 in 2015-16 – 90 per cent of which were by SMEs), suggesting that many companies are either still relying on advisers to bring this to their attention, or internal process are slowing down the application. 

As the final accounts are needed to make a claim it could be the year-end that is slowing down the application process and leading to manufacturers making retrospective claims in the final 12 months running up to the claim window closing. However, if a manufacturer doesn’t identify a claim which could be a new way of working or a difference in production due to new technology, it’s worth reviewing activity each year as businesses can make amendments up to two-year on a retrospective basis. 

Either way the delay further exacerbates the time lag between initial investment and R&D credit receipt for companies, which does little to help the cash flow of growing manufacturers and can slow down investment and further innovation.  

However, the continuing increase in both the quantum and number of claims being made is of course welcome news for manufacturing businesses; but the sector needs to take a broader look at operations and interrogate all aspects of the business as it might be surprising what will qualify for additional tax relief. 

For more information on R&D tax relief and how RSM can help your business, please contact us

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