HMRC report shows further rise in R&D tax claims
Phil Hartley, director of tax at North West accountancy firm Mitchell Charlesworth comments on the latest research and development (R&D) tax relief statistics from HMRC and the latest trends from R&D claims in the North West.
Revised statistics from HMRC for 2017/18 and 2018/19 tax years continue to show that the number of R&D tax credit claims being made are on the rise – 62,290 for 2017/18 and 74,205 for 2018/19 claims compared to 53,015 in the 2016/17 tax year.
The 2019/20 tax year has already surpassed the 2018/19 tax year, with 85,900 claims having already been made up to 31 March 2020 with another year of submissions still to come.
In turn this has led to increased tax relief being claimed – in 2017/18 £5,150bn was claimed, an increase of 14.7% from 2016/17. In 2018/19 £6,295bn was claimed, an increase of 21.7%. £7,445bn has already been claimed for 2019/20, an increase of 18.9% with 12 months available to make a claim.
As can be seen, the claim volume and size have significantly increased in comparison to earlier years, with the number and size of claims for 2019/20 already exceeding the 2018/19 year end. The figures also demonstrate that the amount being treated as R&D expenditure outstrips the Office for National Statistics (ONS) figure for R&D spend in the UK by £21.6bn, representing 2.2% of GDP compared to 1.7% per the ONS.
The biggest concentration of claims remains in manufacturing, IT and professional, scientific and technical sectors as with previous years. However, the construction industry saw a big rise in claims along with the health and social work industry and the food industry, as was the case in the previous years’ statistics. This continues to demonstrate that more ‘non-traditional R&D’ companies are realising that R&D tax relief can be claimed for the activities that they undertake.
The North West continues to be the third largest claimant of R&D in the country in terms of number of claims, accounting for 10.38% of the claims, with only London and the South East accounting for more claims. However, the amount of R&D relief claimed by North West companies is substantially lower than the national average. The average SME claim in the North West is £43,505 compared to the national average of £57,330. The average research and development expenditure credit (RDEC) claim (the scheme used by larger companies) is £333,333 compared to the national average of £617,849. Although these results are pleasing and continue to show the North West as a leading area for R&D activities, it does also demonstrate that the cost base for our region is much lower than that in the South of England, meaning that average claim values are unlikely to reach the levels of London and the South East anytime soon.
These latest statistics seem to demonstrate quite clearly why HMRC have concerns over the validity of certain R&D claims that are being submitted. We have recently had the R&D consultation from HMRC, with feedback due as part of the Autumn Budget, as well as stricter approaches being undertaken on the validity of claims. Whilst this is likely to impact R&D claims moving forwards, it can be seen as a positive for the relief as a whole as it will ensure that the businesses who are genuinely undertaking these activities will continue to benefit from this valuable relief.
Given this tougher approach from HMRC businesses need to ensure that a claim is valid and that all available costs are considered and captured, which is where we are available to provide advice and support and have a great track record of assisting our clients in maximising the support available to them.
For advice and guidance on R&D tax relief and if it is applicable to your business, please contact Phil Hartley below.
Director of Tax0161 817 6100Manchester
Written 12 October 2021.