The latest HMRC statistics on Research & Development tax relief reveal that in 20 years, over 300,000 claims have been made, delivering £33.3bn of tax relief to UK businesses since its introduction in 2000.
What is now a clear trend, this year’s figures show again that claims have risen in both number, and level of support delivered. In 2018-19, over 59,000 claimants have received £5.3bn of tax relief. This is a 25 per cent increase in value delivered, 70 per cent of which is accounted for by increases in the number of SMEs claiming the relief.
Commenting on the figures, James Tetley, partner and national head of R&D at RSM said: ‘Of course, it’s great to see the scheme continuing to deliver more and more value to businesses. But if 2020 has taught us anything, it is that big changes (societal, structural, fiscal etc) can be made very quickly when there is the need. Perhaps in the 20th year of the R&D tax credit system, it is time to think much ‘bigger’ around how the regime can evolve to deliver value back to those that innovate?’
Whilst the headlines are positive, they belie a growing level of imbalance in who benefits from the scheme, being heavily weighted towards larger claimants. A little over 50 per cent of submissions result in a claim with a value of under £25,000, whilst c.25 percent of submissions result in a claim valued at between £50,000-500,000, and at the upper end, over 30 percent of the total value of claims is delivered to just 255 claimants (0.5 percent) each making claims valued at over £2m.
James Tetley continued: ‘When looking specifically at the individual values that claims are generating, it is still clear that most of the value of the relief goes to a minority of claimants. As an example, within the RDEC scheme, nearly 70 per cent of the total value of claims was delivered to only 190 businesses, each making claims valued at over £2m. We don’t want to introduce further complexity to the R&D tax credit system, but perhaps it is time to consider more of a tapered system that limits the benefit to the very largest of claimants, but funds a boost in the value delivered to the smaller claimants?’
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 FY20). For large companies, where the R&D Expenditure Credit (RDEC) regime applies, the relief is now worth 13 per cent pre-tax (or 10.53 per cent post-tax), having increased 1 per cent in April this year.