New HMRC R&D tax credit statistics released: identification of the key findings
HM Revenue and Customs (HMRC) have released their latest Research and Development (R&D) Tax Credits Statistics Report; sharing data for accounting periods ending during the 2017-18 tax year. The report, published each year, provides valuable information on the number of UK companies benefiting from the relief and the value of the cash benefits secured.
Displaying a few notable trends, we at LimestoneGrey analysed the data, assessing to what extent companies are utilising this valuable government incentive.
Since its inception in 2000, over 300,000 R&D tax credit claims have been submitted to HMRC with companies successfully recovering over £26.9bn in tax relief over this period.
R&D Tax Credit Claims Submitted
Previous R&D statistics reports have shown that, year on year, more and more companies are becoming aware of the relief and are securing valuable financial benefits for their companies. You will not be surprised to hear that this year’s report is by no means an exception.
Once again, there has been a significant increase in the amount of money that businesses have claimed in tax credits for research and development activities. HMRC statistics for the 2017-18 tax year show that, across the UK, there have so far been 48,635 R&D tax credit claims, with UK companies successfully claiming back £4.3bn in tax relief.
Indeed, these figures are likely to rise over the next few months, as it is still possible for companies to submit a claim for this period.
The comparative figure for the 2016-17 tax year, as reported in the 2018 statistics report, showed 39,960 claims in total, providing £3.5bn in tax relief, showing a significant increase on both variables for 2017-2018.
SME claims still account for the largest proportion of all claims. Out of the 48,635 claims, 42,075 were SME claims, representing over 86% of the total. This is not surprising, as the UK economy is dominated by SME companies, and the SME relief is significantly more generous than the large company scheme providing up to 33.3p for every £1 of R&D spend compared to 10p for every £1.
SME's can reclaim up to 33p for every £1 spent on R&D
Large companies can reclaim up to 10p for every £1 spent on R&D
The average value of an SME claim stands at circa £54,000 which is slightly up on the value per last year’s report. The average value of a large company claim stands at circa £316,000 which compares to circa £270,000 per last year’s comparative figure. The statistics are going in the right direction.
Average value of an SME claim
Average value of a large company claim
Concentration of claims in parts of England
Even though all regions within the UK are benefiting from the relief, a large proportion of claims are concentrated in companies with a registered office in London, the South East or the East of England (46% of all claims and 61% of the total amount claimed for 2017-18). This is a trend that has continued from the statistics released in 2018, with the percentages remaining almost identical .
Representation of a range of industry sectors
All sectors taking advantage of the relief have seen an increase in the number of claims submitted. It is refreshing to see sectors that should benefit from R&D claims, but which have traditionally not taken full advantage of the relief, making sizeable increases to the number of claims submitted.
In 2017-2018, agriculture, forestry and fishing, along with construction, saw a large increase in the number of claims submitted as shown below. These two sectors claimed back a total of over £1bn.
Agriculture, forestry and fishing claims up by 57%
Construction claims up by 48%
The ‘Manufacturing’, ‘Professional, Scientific and Technical’, and ‘Information and Communication’ sectors continued to have the greatest volume of claims, making up a total of 68% of claims and 73% of the total amount claimed for 2017-18.
Professional, Scientific & Technical sector made the largest increase in claims, up by 1,855, a total of 24%.
Manufacturing continue to make the highest value of claims, with their expenditure surpassing any other sector, which is no surpirse.
The diversity of industries claiming R&D tax credits demonstrates how wide HMRC’s definition of R&D is and that qualifying R&D projects can be found in so many sectors, where most would not expect to see R&D taking place.
The rise in smaller claims
Unsurprisingly, the cost band that experiences one of the largest number of claims is £50k – £100k. This is where the average value of a UK SME claim sits.
More surprisingly is the rise in the claims submitted in the lower cost bands. Circa 75% of SME claims are worth less than £50,000 and 18% of all claims are worth less than £5,000. This could be the result of a number of factors:
- An increase in companies, particularly start ups, who are claiming early on in their R&D process where the bulk of costs have not yet been spent.
- Companies not using specialist advisers to create a claim, therefore foregoing expenditure that should have been included, decreasing the true value of their claim as a result.
- Companies who are making claims for the first time being extremely cautious on the expenditure they are including, potentially being hindered by the risk of an HMRC investigation.
A good adviser would guide you through these queries and challenges.
First time applications
Companies submitting their first R&D claim continues to increase. In 2017-2018 there were 8,020 first applications. This is an increase of circa 15% from 2016-2017.
The increase has come entirely from SMEs, with the number of first-time claims from large companies actually falling slightly for the first time in many years, perhaps as a result of fewer companies moving from the SME scheme to the RDEC (Research and Development Expenditure Credits) scheme for larger businesses.
R&D tax credits and the company life cycle
The largest number of claims in 2017-2018 came from companies between 5-10 years old (24%) and 0-5 years old (17%). It could be argued that R&D activity is so important for companies in their early years, especially if they are bringing a new product/service to the market.
However, there isn’t a sizeable gap in the percentage of R&D claims between each of the age bandings, as displayed in the chart below. This shows how vital it is that companies continue to undergo R&D activity throughout their lifespan to stay competitive.
% of R&D claims by age of company
- 30 years or over 14% 14%
- 25 to 30 years 5% 5%
- 20 to 25 years 8% 8%
- 15 to 20 years 15% 15%
- 10 to 15 years 16% 16%
- 5 to 10 years 24% 24%
- 0 to 5 years 17% 17%
Can my company claim R&D tax credits?
More companies qualify for this valuable corporation tax relief than most tend to realise. It is widely accepted that a large proportion of eligible companies do not claim. As a result, UK businesses literally miss out on billions of pounds in additional funding each year.
To qualify for the relief, you essentially need to demonstrate that the company has a project which involved uncertainty. A project can be creating new, improving existing or duplicating a rival’s product, process, service, software or device. Uncertainty is present if you could not say with certainty from the outset that the project could be achieved, or how to achieve it in practice.
An SME can receive up to 33p for every £1 spent on R&D activities, while a large company can claim 10p for every £1. Costs which qualify for the relief include wages, agency workers, subcontractors, consumable items & materials, and software.
LimestoneGrey, Chartered R&D tax credit experts
LimestoneGrey are Specialist Chartered Tax Advisers. We specialise solely in the niche area of R&D Tax Credits and have a deep understanding and a wealth of experience in securing R&D tax relief for our clients. We work hard to inform businesses of their entitlements. So, if you want to discuss R&D tax matters, call us today.
Note: The above statistics have been taken from the HMRC R&D tax credit statistics report published 10th October 2019. The 2017-2018 R&D statistics contained within this report are based on the number and amount of R&D tax credit relief claimed by UK companies up to the cut-off date for the report.
The 2017-2018 statistics are likely to be revised upwards over the coming months as companies are still able to submit claims for the 2017-2018 period.
For comparison purposes, the 2017-2018 statistics were compared to the 2016-2017 statistics as stated in last year’s report published in September 2018 which showed the number of claims and amount claimed for the 2016-2017 tax year as at the cut-off date for that report.
These statistics have since been revised upwards and the final statistics for 2016-20017 can be found in the 2019 report.
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