R&D Tax Credits are extremely beneficial incentives available to innovators across the UK - and more and more businesses are taking note.
The government lead scheme has been transformative for startups, reducing capital risk and propelling them into their next stage of growth.
In this blog, we’ll be using HMRC’s most recent data to summarise the key statistics and look at the trends making the most noise the world of R&D Tax Credit claims.
1. Number of R&D Tax Credit Claims
The government aims to increase the UK’s research and development expenditure from its current level of 1.7% to 2.4% by 2027. An increase in the number of R&D Tax Credit claims would spur this, and the data shows that this is exactly what’s happening, year after year.
HMRC reported that the total number of R&D claims made in 2020 was 85,900 – surpassing the previous year by 16%.
Within this, 76,225 were made under the SME Scheme, hugely outweighing the 9,675 RDEC Scheme claims. The popularity of SME Tax Credits is arguably associated with its’ eligibility criteria, which aligns with the majority of startups and SMEs.
Moreover, if grant funding expenditure is increased to match its’ increasing competitiveness, it’s likely that the number of RDEC Tax Credit claims will also rise - as RDEC is the only scheme compatible with government financial aid.
2. Amount of R&D Tax Relief Claimed
The total financial support claimed through R&D Tax Credit schemes in 2020 was estimated to have reached £7.4 billion. This indicates a 19% increase from last years total of £6.3 billion.
Within this £7.4 billion spend, £4.4 billion was distributed through the SME Scheme, and £3.1 billion through RDEC.
Considering that SME schemes dominate R&D Tax Credit claims in terms of volume, these figures may be closer together than you would’ve thought.
The reason for this is that RDEC Tax Credits deal with much larger sums of money, from businesses that have amassed over 500 employees, over €86M in gross assets and over €100M in turnover.
In fact, the data revealed that businesses claiming under the RDEC scheme received an average of 3.5 times the expenditure of those claiming under the SME Tax Credit Scheme.
3. Regional Analysis of Research and Development
Now let’s look at how R&D Tax Credits have been distributed geographically around the UK.
HMRC’s 2019-20 report provided a regional analysis of companies claiming R&D Tax Relief, based on the location of their registered office.
An expected cluster of claims came from businesses registered in London. The data shows that the capital was home to 20% of all claims and had received a whopping 31% of the total cash sum.
Next up, the South East received 15% of total R&D Tax Credits, followed by the East of England with 11% of all R&D claims. Following a similar pattern to recent years, the Midlands and the North of England still account for far less R&D Tax Credit claims.
Interestingly, Scotland’s 19% increase represents the biggest overall rise in the number of R&D claims in any UK region. This growth is particularly concentrated in three sectors; renewables, manufacturing and technology. Scotland is setting a great example when it comes to adapting to a post-carbon future. Their green innovation has allowed 97.4% of the nation’s electricity to become entirely renewable.
4. Sector Analysis
When we take a closer look at other research & development sectors in relation to Tax Credits, we can see that Scotland’s dominant sectors match that of the UK as a whole.
According to HMRC, the most prevalent sectors in R&D Tax Credits are:
· Information and Communication – 20% of total amount claimed.
· Manufacturing – 25% of total amount claimed.
· Professional, Scientific and Technical – 24% of the total amount claimed.
5. First Time Applicants for R&D Tax Credits
The number of companies filing an R&D Tax Credit claim for the first time is higher than ever before. For the year ending in March 2019, the number of first-time applicants in the SME Tax Credit scheme increased by a whole 25%.
This significant figure reflects 17,495 new SME applicants. As visibility of the scheme is rising, we expect this number to continue to grow.
The RDEC Tax Credit scheme saw 2,000 new applicants, increasing on the previous year’s figures by 7%.
Don’t wait around!
It’s fantastic that the R&D Tax Credit scheme has succeeded in incentivising UK innovation.
However, the year-on-year increase could eventually force HMRC to tighten their purse strings and process applications with more scrutiny.
That’s why it’s more important than ever to have an experienced R&D advisor on your side, to complete your claim and maximise the capital you’ll receive. R&D experts, such as Claim Capital, pledge to complete your R&D Tax Credit claim in 3-5 days at an affordable fixed-fee.
HMRC’s data suggests that a huge influx of businesses are raising funds through claiming R&D Tax Credits. If you want to become one of them, contact Claim Capital to speak with one of our experts and determine your eligibility.