The Government’s plans to become a scientific superpower by 2025 is picking up pace, with a substantial surge in R&D Tax Credits and their value. UK companies are continuing to increase their overall investment in R&D, claiming under both the SME scheme for small-medium sized businesses and the RDEC scheme for large enterprises.
The scheme itself has been around since 2000, but every year there is a substantial amount of growth in terms of new claimants. In the year 2018/2019 there was a 25% increase in claimants for the SME scheme and a 7% increase for claimants of the RDEC scheme. The figures covering up to March 2020 show an impressive 16% increase in the number of claims, and a 19% increase in the amount of money claimed with SME’s leading the way. Small to medium-sized enterprises can reap benefits such as a larger expense deduction or if loss-making, they can even get a payable tax credit, giving them a well-needed cash injection.
On The Road To Financial Recovery
A total of 82,950 businesses were rewarded with R&D Tax Credits, with a total of £7.5bn in R&D Tax Relief claimed, a huge figure that shows the huge surge of new claimants. After the Pandemic, the UK is slowly on the road to recovery with it hinging on innovation to supercharge economic growth, the scheme is a great way to give back to those innovative and forward-thinking companies who do so much for the UK, not only economically but also in society.
Even though the RDEC scheme is less generous than the SME scheme, SME claimants that make use of the RDEC scheme on average can claim 3.5 times more in an R&D Tax Credits payout than similar businesses claiming under the SME scheme, despite there being more restrictions than the SME scheme.
There were three main sectors that generally dominated the share of R&D Tax Credits, in terms of claim volume, 64% of all claims were from these three sectors, and in terms of claim value, they devoured 69% of the support claimed. So what industries were they? Manufacturing, Information & Communication and Professional, Scientific and Technical. However, compared to other industries that claim the tax credits, Manufacturing has seen a disappointing growth of total claim value compared to other sectors, with just an 11% climb, compared to a national average of 19% it is dull.
When it comes to Geographical data, Scotland has seen the largest overall growth of the number of claims (+19%), which have come from Renewables, Manufacturing and Technology. The country has been a fast learner when it comes to it’s green energy credentials, with Renewables producing 97.4% of Scotland’s electricity in 2020 – a commendable and admirable achievement. The Renewables industry is bursting with innovation making it a driver of Research & Development for creating new energy generation systems, driving economic prosperity.
The New R&D Cap
A cap of £20,000 and 300% of a company’s total PAYE and NIC liability was introduced in April 2021, to tackle the number of fraudulent claims for R&D work that was done outside of the UK. The value of these fraudulent activities cost in excess of £300 million, therefore reintroducing the cap. The new rules will only affect claimants who are loss-making and low-profit, who are seeking to make use of the new scheme.
A company is exempt from the cap altogether if it’s employees are “creating, preparing to create, or managing Intellectual Property, and it does not spend more than 15% of it’s qualifying R&D expenditure on subcontracting R&D to connected parties, or on the provision of externally provided workers by connected parties”. HMRC saw a huge boost in SME claimants between 2018-2018, and the number of payable tax credits increased to reach £2.2 billion resulting in the scheme being closely regulated.
To find out more about how you can be rewarded for your Innovation, click here.