R&D tax relief claims rise by over 20 per cent

New statistics from HMRC have revealed that there was a 22 per cent year-on-year rise in the number of claims for research and development (R&D) tax credits submitted by companies in 2017-18, with the level of support provided rising by 26 per cent.

The latest data shows that companies submitted 48,635 claims for research and development tax credits in 2017-18, up from 39,960 in 2016-17 reported in September last year. The total amount of R&D support claimed rose to £4.3bn, an increase of £1bn from the previous year. 

A total of £31.3bn was claimed as qualifying R&D in 2017-18, an increase of 26 per cent from the previous year.

First introduced in 2000, R&D tax credits are designed as a tax relief to encourage greater R&D spending and innovation. They work by reducing a company’s tax bill by an additional amount depending on the company’s allowable R&D expenditure. Since launch, over 300,000 claims have been made, with £26.9bn claimed in tax relief. 

Over time, the rate of relief has become more generous and 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). For large companies, where the R&D Expenditure Credit (RDEC) regime applies, the relief is now worth 12 per cent pre-tax (or 9.72 per cent post-tax).

The statistics show an interesting trend relating to age of claimant companies. Just over 40 per cent of claims are made by companies less than 10 years old. This suggests that despite continued efforts by both HMRC and the adviser community, businesses still perceive R&D tax credits to be predominantly for young companies. However, more established companies continue to innovate year on year to remain globally competitive, and may be failing to recognise their entitlement to claim.

Commenting on the figures, James Tetley, partner and national head of R&D at RSM said: 

'The latest statistics largely confirm the trends we have seen over the past few years. Claim numbers and quantum continue to rise sharply, with a concentration among companies in London and the South East.  Manufacturing, Information and Communication, and Professional, Scientific and Technical businesses continue to account for the bulk of claims.

'This rise in claims has proved challenging for HMRC and companies applying for R&D tax reliefs have experienced significant delays in the processing of claims, sometimes up to nine months.

'To the relief of claimants and their advisers, new resource has cleared the backlog and HMRC is now better equipped to handle the higher levels of claims that we now see. From 1 October 2019, the processing of claims has moved to a larger team in Cardiff which should be better able to cope with the fluctuations in demand. Prompt processing is crucial to help reduce the time lag between R&D spend and receiving the relief. This is particularly important for early stage businesses where cashflow is often an issue. 

'While much is uncertain as we move towards the next deadline in the Brexit saga, enhancing the R&D scheme would be an obvious lever available to the Government to try and boost the UK economy post Brexit, particularly if State Aid constraints no longer applied.'